Premier, Inc. (PINC)

FORM DEF 14A | Proxy Statement (definitive)
Oct. 24, 2018 7:00 AM
|
About: Premier, Inc. (PINC)View as PDF
Premier, Inc. (Form: DEF 14A, Received: 10/24/2018 07:02:47)
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant  ☒                             Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Pursuant to §240.14a-12

PREMIER, INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

     

  (2)  

Aggregate number of securities to which transaction applies:

 

     

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

     

  (4)  

Proposed maximum aggregate value of transaction:

 

     

  (5)  

Total fee paid:

 

     

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing Party:

 

     

  (4)  

Date Filed:

 

     


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October 24, 2018

Dear Premier Stockholders:

I am pleased to invite you to attend the Premier, Inc. 2018 Annual Meeting of Stockholders (the “Annual Meeting”). The meeting will be held on Friday, December 7, 2018, at our corporate headquarters located at 13034 Ballantyne Corporate Place, Charlotte, North Carolina, beginning at 10:00 a.m., Eastern Standard Time.

We will consider the items of business described in the Notice of 2018 Annual Meeting of Stockholders and in the proxy statement accompanying this letter. The proxy statement contains important information about the matters to be voted on and the process for voting, along with information about Premier and its management and directors.

Every stockholder’s vote is important to us. Even if you plan to attend the Annual Meeting in person, please promptly vote by submitting your proxy by phone, by Internet or by mail if you hold Class A common stock or by providing your voting instructions to Wells Fargo Delaware Trust Company, N.A., the trustee of the Class B common stock under the Voting Trust Agreement, if you beneficially own Class B common stock. The “Frequently Asked Questions” section of the proxy statement and the enclosed proxy card (or in the case of Class B common stock, the voting instruction card) each contain detailed instructions for submitting your proxy or instructions and voting your shares. If you plan to attend the Annual Meeting in person, you must have an admission ticket and a form of personal identification in order to be admitted to the meeting.

On behalf of the directors, management and employees of Premier, thank you for your continued support of and ownership in our company.

Sincerely,

 

LOGOClick to enlarge

Richard J. Statuto

Chair of the Board of Directors


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PREMIER, INC.

NOTICE OF 2018 ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON DECEMBER 7, 2018

The Premier, Inc. 2018 Annual Meeting of Stockholders (the “Annual Meeting”) will be held on Friday, December 7, 2018, at our corporate headquarters located at 13034 Ballantyne Corporate Place, Charlotte, North Carolina, beginning at 10:00 a.m., Eastern Standard Time.

At the Annual Meeting, we will consider:

1. The election of six Class II Directors to the Board of Directors to serve until our 2021 annual meeting of stockholders.

2. The ratification of the appointment of Ernst & Young LLP to serve as our independent registered public accounting firm for our fiscal year 2019.

3. The approval of the Amended and Restated Premier, Inc. 2013 Equity Incentive Plan.

4. The approval, on an advisory basis, of the compensation of our named executive officers as disclosed in the proxy statement pursuant to the compensation disclosure rules of the U.S. Securities and Exchange Commission.

5. The transaction of such other business as may properly come before the Annual Meeting and any adjournment or postponement thereof.

Holders of Class A common stock and Class B common stock at the close of business on our record date of October 10, 2018 are entitled to notice of and to vote at the Annual Meeting and any postponement or adjournment of the meeting. With respect to the matters to be voted upon at the Annual Meeting, all shares of Class A and Class B common stock will be voted together as a single class. For Class A common stock, the shares will be voted if present in person or represented by proxy. For Class B common stock, the shares will be voted by Wells Fargo Delaware Trust Company, N.A. (the “Trustee”), as trustee under the Voting Trust Agreement (the “VTA”), among Premier, Inc., Premier Healthcare Alliance, L.P. (f/k/a Premier Purchasing Partners, L.P.), the holders of our Class B common stock and the Trustee. As of the record date, our outstanding Class B common stock represented a majority of our total outstanding shares of Class A and Class B common stock combined and, accordingly, can control the outcome of the matters to be voted upon at the Annual Meeting. References herein to “holders of our Class B common stock,” or similar phrases, are to the beneficial owners of the Class B common stock held by the Trustee pursuant to the VTA. The Trustee is the sole record holder of our Class B common stock.

Your vote is important. Holders of Class A and Class B common stock should vote or provide voting instructions, as applicable, in one of these ways:

(1) INTERNET: Go to www.proxyvote.com and follow the instructions. You will need to enter the control number printed on your proxy or voting instruction card;

(2) TELEPHONE: Call toll-free 1-800-690-6903 and follow the instructions. You will need to enter the control number printed on your proxy or voting instruction card; or

(3) MAIL: Complete, sign, date and promptly return your proxy or voting instruction card in the enclosed envelope.


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In addition, holders of Class A common stock may submit a completed ballot in person at the Annual Meeting. While holders of Class B common stock are welcome to attend the Annual Meeting in person, they will not be able to vote or provide voting instructions at the Annual Meeting. Holders of Class B common stock may only vote their Class B common stock by providing voting instructions to the Trustee.

For a period of at least 10 days prior to the Annual Meeting, a complete list of stockholders entitled to vote at the Annual Meeting will be open for examination by any stockholder for any purpose germane to the meeting during regular business hours at our corporate headquarters located at 13034 Ballantyne Corporate Place, Charlotte, North Carolina.

 

If you plan to attend the Annual Meeting, you will need to obtain an admission ticket and present photo identification. Instructions on how to obtain an admission ticket are set forth in the accompanying proxy statement under “How do I gain admission to the Annual Meeting?”

Important Notice Regarding the Availability of Proxy Materials

For the Annual Meeting of Stockholders to be Held on December 7, 2018

Premier, Inc.’s proxy statement on Schedule 14A, form of proxy or voting instruction card and 2018 Annual Report (including the 2018 Annual Report on Form 10-K) are available at www.proxyvote.com after entering the control number printed on your proxy or voting instruction card.

 

By order of the Board of Directors,

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Anna-Marie Forrest

Corporate Secretary

October 24, 2018


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PREMIER, INC.

PROXY STATEMENT

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INTRODUCTION

     1  

FREQUENTLY ASKED QUESTIONS

     1  

COMPANY INFORMATION AND MAILING ADDRESS

     10  

ITEMS OF BUSINESS REQUIRING YOUR VOTE

     11  

ITEM 1 – ELECTION OF DIRECTORS

     11  

ITEM 2 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     19  

ITEM 3 – APPROVAL OF THE AMENDED AND RESTATED PREMIER INC. 2013 EQUITY INCENTIVE PLAN

     21  

ITEM 4 – ADVISORY VOTE ON EXECUTIVE COMPENSATION

     32  

CORPORATE GOVERNANCE AND BOARD STRUCTURE

     34  

COMPENSATION OF DIRECTORS

     52  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     56  

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     59  

RELATED PERSON TRANSACTIONS

     60  

EXECUTIVE COMPENSATION

     63  

COMPENSATION DISCUSSION AND ANALYSIS

     63  

EXECUTIVE COMPENSATION TABLES

     84  

CEO COMPENSATION RATIO

     96  

COMPENSATION COMMITTEE REPORT

     98  

REPORT OF THE AUDIT AND COMPLIANCE COMMITTEE

     100  

EXECUTIVE OFFICERS

     101  

OTHER BUSINESS

     103  

ANNUAL REPORT ON FORM 10-K

     103  

STOCKHOLDER PROPOSALS FOR 2019 ANNUAL MEETING OF STOCKHOLDERS

     104  

Amended and Restated Premier, Inc. 2013 Equity Incentive Plan.

     A-1  

Fiscal Year 2018 Performance – GAAP to non-GAAP Reconciliations

     B-1  

 

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PREMIER, INC.

2018 PROXY STATEMENT

 

 

INTRODUCTION

The 2018 Annual Meeting of Stockholders (the “Annual Meeting”) of Premier, Inc., a Delaware corporation (“Premier,” “we,” “us,” “our” or the “Company”), will be held on Friday, December 7, 2018, beginning at 10:00 a.m., Eastern Standard Time, at our principal executive offices located at 13034 Ballantyne Corporate Place, Charlotte, North Carolina 28277. We encourage all of our stockholders to vote at or before the Annual Meeting, and we hope the information contained in this document will help you decide how you wish to vote.

FREQUENTLY ASKED QUESTIONS

What is the purpose of this proxy statement?

Our Board of Directors (the “Board of Directors” or “Board”) is (i) soliciting a proxy from each holder of our Class A common stock to vote on, and (ii) requesting that voting instructions be provided by each holder of our Class B common stock to Wells Fargo Delaware Trust Company, N.A. with respect to, the items to be considered at the Annual Meeting, which will be held on December 7, 2018. Wells Fargo Delaware Trust Company, N.A. is the trustee (the “Trustee”) of the voting trust (the “Class B Voting Trust”) under the Voting Trust Agreement (the “VTA”) among Premier, Premier Healthcare Alliance, L.P. f/k/a Premier Purchasing Partners, L.P. (“Premier LP”), the holders of our Class B common stock and the Trustee. References herein to “holders of our Class B common stock” or similar phrases are to the beneficial owners of the Class B common stock held by the Trustee pursuant to the VTA. The Trustee is the sole record holder of our Class B common stock.

This proxy statement and related materials are first being sent to our stockholders on or about October 24, 2018.

Why did I receive a notice regarding the availability of proxy materials on the Internet?

Pursuant to the rules adopted by the Securities and Exchange Commission (“SEC”), we are furnishing proxy materials to our stockholders primarily via the Internet rather than mailing paper copies of these materials to each stockholder. We believe that this process expedites stockholders’ receipt of the proxy materials, lowers the costs of the Annual Meeting and helps conserve natural resources. On or about October 24, 2018, we will mail to each stockholder (other than those stockholders who had previously requested electronic or paper delivery of the proxy materials) a Notice of Internet Availability of Proxy Materials containing instructions on how to access and review the proxy materials, including our proxy statement and annual report, on the Internet and how to access a proxy card (or voting instruction card in the case of holders of our Class B common stock) to vote on the Internet or by telephone. The Notice of Internet Availability of Proxy Materials also contains instructions on how to request a paper copy of the proxy materials. If you received a Notice of Internet Availability of Proxy Materials by mail, you will not receive a paper copy of the proxy materials unless you request one. If you would like to receive a paper copy of the proxy materials, please follow the instructions included in the Notice of Internet Availability of Proxy Materials. We may, at our discretion, voluntarily choose to mail or deliver a paper copy of the proxy materials, including our proxy statement and annual report, to one or more stockholders.

What items of business will be voted on at the Annual Meeting?

At the Annual Meeting, we will consider and act upon the following proposals:

 

  1.

The election of six Class II Directors to the Board of Directors to serve until our 2021 annual meeting of stockholders.

 

  2.

The ratification of the appointment of Ernst & Young LLP (“EY”) to serve as our independent registered public accounting firm for our fiscal year 2019.

 

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  3.

The approval of the Amended and Restated Premier, Inc. 2013 Equity Incentive Plan (the “Amended and Restated 2013 EIP”).

 

  4.

The approval, on an advisory basis, of the compensation of our named executive officers, as disclosed in this proxy statement pursuant to the compensation disclosure rules of the SEC.

 

  5.

The transaction of such other business as may properly come before the Annual Meeting and any adjournment or postponement thereof.

Who is entitled to vote at the Annual Meeting?

Holders of Class  A common stock . Holders of our Class A common stock as of the record date of October 10, 2018 (the “Record Date”) are entitled to notice of and to vote at the Annual Meeting and any postponement or adjournment of the meeting.

Holders of Class  B common stock . The Trustee, as the record holder of the Class B common stock on the Record Date, is entitled to vote the Class B common stock at the Annual Meeting and any postponement or adjournment of the meeting. As provided in the VTA, beneficial owners of Class B common stock as of the Record Date are eligible to provide voting instructions to the Trustee with respect to their shares of Class B common stock. Beneficial owners of Class B common stock must provide voting instructions not later than 11:59 p.m., Eastern Standard Time, on December 4, 2018 in order to be counted.

How will the Trustee vote the Class B common stock held in the Class B Voting Trust?

Based on the instructions of the beneficial owners of the Class B common stock and pursuant to the VTA, the Trustee will vote all of the Class B common stock as a block in the manner determined by the plurality of the votes timely received by the Trustee from such beneficial owners of Class B common stock for the election of directors to serve on our Board of Directors, and by a majority of the votes timely received by the Trustee from such beneficial owners of the Class B common stock for all other matters. In the event that the voting instructions provided by the beneficial owners of the Class B common stock result in a tie, the Trustee shall vote all shares of Class B common stock held in the Class B Voting Trust based upon our written direction. In such case, we intend to instruct the Trustee to vote the shares of Class B common stock in accordance with the recommendations of the Board of Directors on each matter as set forth in this proxy statement.

How does the Board of Directors recommend stockholders vote on the business of the Annual Meeting?

The Board of Directors recommends that stockholders vote their shares:

 

  1.

FOR ” the election of each of the six Class II Director nominees identified in this proxy statement.

 

  2.

FOR ” the ratification of the appointment of EY to serve as our independent registered public accounting firm for our fiscal year 2019.

 

  3.

FOR ” the approval of the Amended and Restated 2013 EIP.

 

  4.

FOR ” the approval, on an advisory basis, of the compensation of our named executive officers, as disclosed in this proxy statement pursuant to the compensation disclosure rules of the SEC.

With respect to any other matter that properly comes before the Annual Meeting, the proxy holders will vote in accordance with their judgment on such matter.

How many shares can be voted at the Annual Meeting?

At the close of business on October 10, 2018, 53,925,158 shares of our Class A common stock and 79,409,403 shares of our Class B common stock were outstanding. Each share of Class A common stock and each share of

 

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Class B common stock is entitled to one vote. The Trustee of the Class B Voting Trust will vote all shares of Class B common stock as a block based on voting instructions from the beneficial owners of the Class B common stock (or pursuant to our written directions, in the event such instructions result in a tie), as described above.

How many shares must be present or represented at the Annual Meeting to constitute a quorum to conduct business?

Under our Amended and Restated Bylaws (the “Bylaws”), the holders of a majority of the voting power of our stock (Class A common stock and Class B common stock combined) issued and outstanding and entitled to vote at the Annual Meeting, present in person or represented by proxy at the Annual Meeting, constitute a quorum to conduct business at the Annual Meeting. Abstentions will be treated as present for purposes of determining a quorum. Regardless of how the beneficial owners of Class B common stock instruct the Trustee to vote their shares, under the VTA, all of the shares of Class B common stock held in the Class B Voting Trust will be counted as present for the purposes of establishing a quorum. Accordingly, regardless of the number of shares of Class A common stock voted, we expect to have a quorum established for the Annual Meeting.

What vote is required to approve each of the items of business?

Item 1—Election of directors . Directors will be elected by the holders of a plurality of the votes cast by the holders of Class A common stock and Class B common stock entitled to vote at the Annual Meeting, voting together as one class, whether present in person or represented by proxy at the Annual Meeting.

Item 2—Ratification of independent registered public accounting firm . The affirmative vote of the holders of a majority of the votes cast by the holders of Class A common stock and Class B common stock entitled to vote at the Annual Meeting, voting together as one class, whether present in person or represented by proxy at the Annual Meeting, is required to ratify EY as our independent registered public accounting firm.

Item  3—Approval of the Amended and Restated 2013 EIP. The affirmative vote of the holders of a majority of the votes cast by the holders of Class A common stock and Class B common stock entitled to vote at the Annual Meeting, voting together as one class, whether present in person or represented by proxy at the Annual Meeting, is required to approve the Amended and Restated 2013 EIP.

Item 4—Approval, on an advisory basis, of the compensation of our named executive officers (“say-on-pay”) . Please note that the “say-on-pay” vote is only advisory in nature and has no binding effect on us or our Board of Directors. Our Board of Directors will consider Item 4 approved if the votes cast in favor of such proposal exceed the votes cast against such proposal.

Can Class B holders determine the outcome of the proposals?

As of the Record Date, our outstanding Class B common stock represented approximately 59.6% of our total outstanding shares of Class A common stock and Class B common stock combined. Accordingly, sufficient shares of Class B common stock are held in the Class B Voting Trust to determine the outcome of each item under consideration. Although the beneficial owners of our Class B common stock have not indicated how they will instruct the Trustee to vote their shares of Class B common stock, under the VTA, so long as we are a “controlled company” under the NASDAQ stock market (“NASDAQ”) rules, beneficial owners of Class B common stock are required to use reasonable efforts to cause (i) the appointment or nomination of directors necessary to constitute the full Board of Directors, (ii) the election of at least three independent directors, including one who is an “audit committee financial expert” under the federal securities laws, and (iii) Premier to be in compliance with NASDAQ listing requirements. In the event that the voting instructions provided by the beneficial owners of the Class B common stock result in a tie, the Trustee shall vote all shares of Class B common stock held in the Class B Voting Trust based upon our written direction. In such case, we intend to

 

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instruct the Trustee to vote the shares of Class B common stock in accordance with the recommendations of the Board of Directors on each matter as set forth in this proxy statement. Generally, the VTA will terminate when the holders of our Class B common stock cease to beneficially own in the aggregate at least 20% of our outstanding common stock.

In addition, according to the records of our transfer agent, as of the Record Date, certain holders of our Class B common stock also beneficially owned 1,968,099 shares of our Class A common stock, representing approximately 3.6% of our outstanding Class A common stock and representing approximately 1.5% of our total outstanding shares of Class A common stock and Class B common stock combined.

See “What effect do abstentions and broker non-votes have on the items of business?” for the effect of abstentions and broker non-votes on the required votes above.

What is the Class B common unit exchange process? Will it impact the Annual Meeting?

In connection with our reorganization and initial public offering (“IPO”), our member owners were issued Class B common units in Premier LP and an equivalent number of shares of our Class B common stock. Subject to the terms of the Exchange Agreement entered into as of September 25, 2013, and effective as of October 1, 2013, by and among us, Premier LP and its limited partners (the “Exchange Agreement”), each member owner has the cumulative right, subject to certain restrictions, commencing on October 31, 2014, and during each year thereafter, to exchange up to one-seventh of its initial allocation of Premier LP Class B common units, as well as any additional Premier LP Class B common units purchased by such member owner pursuant to certain rights of first refusal set forth in the Exchange Agreement, on a quarterly basis, for shares of our Class A common stock (on a one-for-one basis), cash or a combination of both, the form of consideration to be at the discretion of the Audit and Compliance Committee of our Board of Directors. For each Premier LP Class B common unit that is exchanged pursuant to the Exchange Agreement, the member owner will also surrender one corresponding share of Premier Class B common stock, which will automatically be retired.

As of the Record Date there were 79,409,403 Class B common units of Premier LP outstanding. On October 31, 2018, the next quarterly exchange date under the Exchange Agreement, 48,973,436 Class B common units of Premier LP will be eligible for exchange under the Exchange Agreement. Based on indicated participation in the October 31, 2018 Class B common unit exchange process, as of October 15, 2018, a maximum of 9,833,739 Class B common units will be exchanged for shares of Class A common stock, cash or a combination thereof, as determined by our Audit and Compliance Committee. Correspondingly, we expect an equal number of shares of Class B common stock to be removed from the Class B Voting Trust and retired. On or about October 31, 2018, we expect to file with the SEC a Current Report on Form 8-K regarding the final results of the October 31, 2018 exchange process.

Since the exchange date does not occur until October 31, 2018, which is after the Record Date, any shares of our Class A common stock issued in exchange for Class B common units will not be entitled to be voted at the Annual Meeting and, accordingly, will not have any impact on the outcome of the matters presented for approval. Upon retirement of shares of Class B common stock in connection with any Class B common unit exchange, the number of shares of Class B common stock held in the Class B Voting Trust will also be reduced, and, since such shares of Class B common stock will no longer be eligible to be voted by the Trustee, the Trustee will not include those ineligible shares in its determination of the vote to be made on behalf of the holders of Class B common stock at the Annual Meeting.

As previously noted, as of the Record Date, our outstanding Class B common stock represented approximately 59.6% of our total outstanding shares of Class A common stock and Class B common stock combined and, thus, can determine the outcome of each item under consideration. Following the completion of the exchange process, assuming we settled the exchange solely with shares of Class A common stock, we expect the Class B common stock to represent approximately 52.2% of our total outstanding shares of Class A common stock and Class B common stock combined. Assuming we settled the exchange solely with cash, we expect the Class B common stock to represent approximately 56.3% of our total outstanding shares of Class A common stock and Class B common stock combined.

 

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While we do not currently expect the Class B common unit exchange process to materially impact the Annual Meeting or the matters to be voted upon thereat, in the event that is not the case, we will provide updated soliciting material to our stockholders prior to the Annual Meeting.

What is the difference between holding shares as a stockholder of record and as a beneficial owner?

Most of our Class A common stockholders hold their shares through a stockbroker, bank or other nominee rather than directly in their own name. As summarized below, there are some distinctions between shares held of record and those owned beneficially.

Stockholder of record . If your shares are registered directly in your name with our transfer agent, EQ Shareowner Services, you are considered, with respect to those shares, the stockholder of record, and we have made these proxy materials available to you over the Internet or have delivered paper copies of these materials to you by mail, in connection with the solicitation of proxies for the Annual Meeting. As the stockholder of record, you have the right to grant your voting proxy directly to us or to vote in person at the meeting. We have enclosed a proxy card for you to use.

Beneficial owner . If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in street name, and these proxy materials are being forwarded to you by your broker, bank or nominee which is considered, with respect to those shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker, bank or nominee on how to vote and are also invited to attend the meeting. However, because you are not the stockholder of record, you may not vote these shares in person at the meeting unless you obtain a signed proxy from the record holder giving you the right to vote the shares. Your broker, bank or nominee has enclosed or provided a voting instruction card for you to use in directing the broker, bank or nominee how to vote your shares. If you do not provide the stockholder of record with voting instructions, your shares may constitute broker non-votes. The effect of broker non-votes is more specifically described in “What effect do abstentions and broker non-votes have on the items of business?” below.

All of the Class B common stockholders are beneficial owners of the Class B common stock held in the Class B Voting Trust. The Trustee is the record holder of all of the shares of Class B common stock. Beneficial owners of Class B common stock will receive a voting instruction card that should be used to provide voting instructions to the Trustee.

How can I have my shares represented at the Annual Meeting?

Voting by Proxy or Returning Voting Instruction Card

Holders of Class A common stock may submit a proxy by:

 

   

following the instructions on your proxy card to vote by telephone or the Internet. These instructions can also be found at www.proxyvote.com . Your telephone or Internet proxy must be received no later than 11:59 p.m., Eastern Standard Time, on December  6, 2018 ; or

 

   

completing, signing, dating and returning the proxy card so that it is received prior to the Annual Meeting.

David L. Klatsky and Michael J. Alkire (the “proxy holders”) have been designated by our Board of Directors to vote the shares represented by proxy at the Annual Meeting. Mr. Klatsky is the General Counsel of Premier, and Mr. Alkire is the Chief Operating Officer of Premier.

 

   

The proxy holders will vote the shares represented by your valid and timely received proxy in accordance with your instructions.

 

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If you do not specify instructions on your proxy when you submit it, the proxy holders will vote the shares represented by the proxy in accordance with the recommendations of the Board of Directors on each item of business listed above.

 

   

If any other matter properly comes before the Annual Meeting, the proxy holders will vote the shares represented by proxy on that matter in their discretion.

Holders of Class B common stock may submit voting instructions by:

 

   

following the instructions on your voting instruction card to vote by telephone or the Internet. These instructions can also be found at www.proxyvote.com . Your telephone or Internet voting instructions must be received no later than 11:59 p.m., Eastern Standard Time, on December  4, 2018 ; or

 

   

completing, signing, dating and returning your voting instruction card so that it is received no later than 11:59 p.m., Eastern Standard Time, on December  4, 2018.

Holders of Class B common stock must vote their shares in accordance with the VTA. Holders of Class B common stock must return their voting instructions as indicated above in order to have their voting instructions considered by the Trustee. Pursuant to the VTA, the Trustee, as the record holder, will vote all of the Class B common stock as a block in the manner determined by the plurality of the votes timely received by the Trustee for the election of directors to serve on our Board of Directors, and by a majority of the votes timely received by the Trustee for all other matters. The Trustee may vote the Class B common stock in person or by proxy in a manner similar to the holders of our Class A common stock.

Attending the Meeting

While we encourage voting in advance by proxy, holders of Class A common stock also have the option of voting their shares in person at the Annual Meeting. Beneficial owners of Class B common stock may only vote their shares in accordance with the terms of the VTA and cannot vote their shares in person at the Annual Meeting (although they are invited and welcome to attend the Annual Meeting in person).

Shares of Class A common stock held directly in your name as the stockholder of record may be voted in person at the Annual Meeting. Submitting your proxy by telephone, by Internet or by mail will in no way limit your right to vote at the Annual Meeting if you later decide to attend in person.

Shares of Class A common stock held beneficially in street name may be voted in person by you only if you obtain a signed proxy from the record holder giving you the right to vote the shares. Owners of shares of Class  A common stock held in street name that expect to attend and vote at the meeting should contact their broker, bank or nominee as soon as possible to obtain the necessary proxy.

Please see “How do I gain admission to the Annual Meeting?” below if you plan to attend the Annual Meeting in person.

Even if you currently plan to attend the Annual Meeting, we recommend that you also submit your proxy as described above so that your vote will be counted if you later decide not to attend the Annual Meeting.

Can I change my vote or voting instructions, or revoke my proxy, after I return my proxy or voting instruction card?

Holders of Class  A common stock . You may change your vote or revoke your proxy before your proxy is voted at the Annual Meeting by:

 

   

sending written notice to Anna-Marie Forrest, Corporate Secretary, Premier, Inc., 13034 Ballantyne Corporate Place, Charlotte, North Carolina, 28277, so long as your revocation is received by 11:59 p.m., Eastern Standard Time, on December  6, 2018 ;

 

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submitting a proxy bearing a later date than the proxy being revoked to Vote Processing c/o Broadridge Financial Solutions, Inc., 51 Mercedes Way, Edgewood, NY 11717, so long as your later dated proxy is received by 11:59 p.m., Eastern Standard Time, on December  6, 2018 ;

 

   

voting again by telephone or the Internet by 11:59 p.m., Eastern Standard Time, on December  6, 2018 ; or

 

   

attending the Annual Meeting and voting in person.

Holders of Class  B common stock . You may change your voting instructions before the Trustee votes on your behalf at the Annual Meeting by:

 

   

submitting voting instructions bearing a later date than the voting instructions being revoked to Vote Processing c/o Broadridge Financial Solutions, Inc., 51 Mercedes Way, Edgewood, NY 11717, so long as your later dated voting instructions are received by 11:59 p.m., Eastern Standard Time, on December  4, 2018 ; or

 

   

submitting your voting instructions again by telephone or the Internet by 11:59 p.m., Eastern Standard Time, on December  4, 2018.

What effect do abstentions and broker non-votes have on the items of business?

A “broker non-vote” occurs when a bank, broker or other nominee holding shares for a beneficial owner does not vote on a particular proposal because that holder does not have discretionary voting power for that particular item and has not received instructions from the beneficial owner. If you are a beneficial owner of Class A common stock, your bank, broker or other nominee holder of record is permitted to vote your shares on the ratification of the independent registered public accounting firm even if the record holder does not receive voting instructions from you. Absent instructions from you, the record holder may not vote on any “nondiscretionary” matter, including a director election, an equity compensation plan, a matter relating to executive compensation or any stockholder proposal. In that case, without your voting instructions, a broker non-vote will occur. For all other matters, including the ratification of our independent registered public accounting firm, the record holder may vote at its discretion. You should consult your bank, broker or other nominee holder if you have questions about this. As indicated above, our Board of Directors will consider Item 4 (“say-on-pay”) approved if the votes cast in favor of such proposal exceed the votes cast against such proposal. Accordingly, broker non-votes will not be counted as votes cast for or against Item 4.

An “abstention” will occur at the Annual Meeting if your shares of Class A common stock are deemed to be present at the Annual Meeting, either because you attend the Annual Meeting or because you have properly completed and returned a proxy, but you do not vote on any proposal or other matter which is required to be voted on by our stockholders at the Annual Meeting. An abstention on any of the items listed above will have the effect of a vote against that item, except for the election of directors and Item 4 (“say-on-pay”), in each case for which abstentions will not be counted.

The affirmative vote of at least a majority of our issued and outstanding shares present, in person or by proxy, and entitled to vote at the Annual Meeting will be required to approve any stockholder proposal validly presented at a meeting of stockholders. Under applicable Delaware law, in determining whether any stockholder proposal has received the requisite number of affirmative votes, abstentions will be counted and will have the same effect as a vote against any stockholder proposal, except for the election of any director nominee. Abstentions will have no effect on a vote to elect a director nominee, and broker non-votes will be ignored for all votes. There are no dissenters’ rights of appraisal in connection with any stockholder vote to be taken at the Annual Meeting.

Shares of Class B common stock will be voted in accordance with the VTA. We do not expect any broker non-votes or abstentions at the Annual Meeting with respect to our Class B common stock.

 

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What does it mean if I receive more than one proxy or voting instruction card?

Most likely, it means (i) your shares of Class A common stock are registered differently or are in more than one account or (ii) you own shares of both Class A and Class B common stock. Please provide voting instructions for all proxy and voting instruction cards you receive.

How do I gain admission to the Annual Meeting?

Attendance at the Annual Meeting is limited to Class A and Class B common stockholders as of the Record Date. Registration will begin at 9:15 a.m., Eastern Standard Time. You will need to bring admission ticket and valid picture identification. Cameras, recording devices and other electronic devices will not be permitted at the meeting. Additional rules of conduct regarding the meeting may be provided at the meeting.

To obtain an admission ticket in advance of the meeting, you must send a written request or email along with proof of ownership (such as your brokerage firm account statement, statement of holdings from our transfer agent or Voting Trust Certificate) to Investor Relations, Premier, Inc., 13034 Ballantyne Corporate Place, Charlotte, North Carolina, 28277 or annualmeeting@premierinc.com . Please bring photo identification with you for admittance to the meeting.

Who pays the cost of soliciting votes for the Annual Meeting?

We are making this solicitation and will pay the entire cost of preparing, assembling, printing, mailing and distributing these proxy materials. If you choose to access the proxy materials or vote over the Internet, however, you are responsible for Internet access charges you may incur. In addition to the mailing of these proxy materials, if requested, the solicitation of proxies or votes may be made in person, by telephone or by electronic communication by our directors, officers and employees, who will not receive any additional compensation for such solicitation activities. We will request banks, brokers, nominees, custodians and other fiduciaries who hold shares of our stock in street name to forward these proxy solicitation materials to the beneficial owners of those shares, and we will reimburse the reasonable out-of-pocket expenses they incur in doing so. At our discretion, we may engage a proxy solicitation firm to assist us with the solicitation process, for which we will bear the costs of any such engagement. We will also reimburse the Trustee for any reasonable expenses incurred in connection with the administration of its duties under the VTA in connection with the Annual Meeting.

Who will count the votes?

We have retained Broadridge Financial Solutions to tabulate the votes and serve as the independent inspector of election for the Annual Meeting.

Where can I find the voting results of the Annual Meeting?

We will publish the final results of the voting in a Current Report on Form 8-K filed with the SEC within four business days of the Annual Meeting.

Can I access the proxy statement and annual report on the Internet?

Yes. As noted above, we are furnishing our proxy materials to our stockholders via the Internet, except for those stockholders who have elected to receive paper copies. We highly recommend that you receive electronic delivery of Premier, Inc. proxy statements, annual reports and other stockholder communications. This helps reduce the use of paper and reduces our printing, postage and other costs. If you have previously requested paper copies of such materials, you can elect to receive electronic copies when you vote on the Internet.

This proxy statement, the form of proxy and voting instruction card and our Annual Report on Form 10-K for the fiscal year ended June 30, 2018 (the “2018 Form 10-K”) are available at www.proxyvote.com . If you are a

 

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stockholder of record who has requested to receive paper copies of the proxy materials and would like to access future Company proxy statements and annual reports electronically instead of receiving paper copies in the mail, there are several ways to do this. You can mark the appropriate box on your proxy card or follow the instructions if you vote by telephone or the Internet. If you choose to access future proxy statements and annual reports on the Internet, you will receive a proxy card in the mail next year with instructions containing the Internet address for those materials. Your choice will remain in effect until you advise us otherwise. If you have Internet access, we hope you make this choice.

What is “householding” and how does it affect me?

Pursuant to SEC rules, we are permitted to deliver one copy of our Notice of Internet Availability of Proxy Materials, and our proxy materials for those who have elected paper copies, in a single envelope addressed to all stockholders who share a single address unless they have notified us they wish to “opt out” of the program known as “householding.” Under this procedure, stockholders of record who have the same address and last name receive only one copy of the Notice of Internet Availability of Proxy Materials or proxy materials. Householding is intended to reduce our printing and postage costs and material waste. WE WILL DELIVER A SEPARATE COPY OF THE NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS, AND PROXY MATERIALS IF APPLICABLE, PROMPTLY UPON WRITTEN OR ORAL REQUEST. You may request a separate copy by contacting our Corporate Secretary at 13034 Ballantyne Corporate Place, Charlotte, North Carolina, 28277, or by calling 1-704-816-4662.

If you are a beneficial stockholder and you choose not to have the aforementioned disclosure documents sent to a single household address as described above, you must “opt-out” by writing to: Broadridge Financial Solutions, Inc., Householding Department, 51 Mercedes Way, Edgewood, New York 11717, or by calling 1-866-540-7095, and we will cease householding all such disclosure documents within 30 days. If we do not receive instructions to remove your account(s) from this service, your account(s) will continue to be householded until we notify you otherwise. If you are a beneficial stockholder and other stockholders with whom you share an address currently receive multiple copies of the aforementioned disclosure documents, or if you hold stock in more than one account and, in either case, you wish to receive only a single copy of the disclosure documents, please contact Broadridge Financial Solutions at the address or phone number above. If you own shares in nominee name (such as through a broker), information regarding householding of disclosure documents should have been forwarded to you by your broker.

Who should I contact if I have questions?

If you are a holder of our Class A or Class B common stock through a brokerage account or the Class B Voting Trust, as applicable, and you have any questions or need assistance in voting your shares, you should contact the broker or bank where you hold the account or the Trustee of the Class B Voting Trust, accordingly.

If you are a registered holder of our Class A common stock and you have any questions or need assistance in voting your shares, please call our Investor Relations department at 1-704-816-5958.

As an additional resource, the SEC website has a variety of information about the proxy voting process at www.sec.gov/spotlight/proxymatters.shtml .

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. UNDER NO CIRCUMSTANCES DOES THE DELIVERY OF THIS PROXY STATEMENT CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN OUR AFFAIRS SINCE THE DATE OF THIS PROXY STATEMENT.

 

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COMPANY INFORMATION AND MAILING ADDRESS

We were organized as a Delaware corporation in 2013. Our mailing address is Premier, Inc., 13034 Ballantyne Corporate Place, Charlotte, North Carolina, 28277, and our telephone number is 704-357-0022. Our website address is www.premierinc.com . References in this proxy statement to “Premier,” the “Company,” “we,” “us” and “our” refer to Premier, Inc. and our consolidated subsidiaries, unless the context requires otherwise. References to “PHSI” refer to Premier Healthcare Solutions, Inc., and references to “Premier Plans” refer to Premier Plans, LLC, an affiliate of Premier that was merged into PHSI in 2013 in connection with our reorganization and IPO. Information on our website is not intended to be and shall not be deemed to be incorporated into this proxy statement.

 

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ITEMS OF BUSINESS REQUIRING YOUR VOTE

ITEM 1—ELECTION OF DIRECTORS

The Board is divided into three classes, each containing as nearly as possible an equal number of directors. The current term of office for our Class II Directors expires at the Annual Meeting, while the term for our Class III Directors expires at the 2019 annual meeting and the term for our Class I Directors expires at the 2020 annual meeting. Upon unanimous recommendation by the Nominating and Governance Committee of the Board of Directors, the Board proposes that the following nominees be elected for new terms of three years and until their successors are duly elected and qualified as Class II Directors: Barclay E. Berdan, William E. Mayer, Scott Reiner, Terry D. Shaw, Richard J. Statuto and Ellen C. Wolf. Each nominee has consented to serve if elected, and each nominee is currently a member of our Board of Directors.    If any of them becomes unavailable to serve as a director, the Board may designate a substitute nominee. In that case, the persons named as proxy holders will vote for the substitute nominee designated by the Board.

Director Qualifications and Biographies

The Nominating and Governance Committee, consistent with the desires of the full Board, seeks to achieve a Board that represents a diverse mix of skills, perspectives, talents, backgrounds and education that will enhance our decision-making process, oversee management’s execution of strategic objectives and represent the interests of all of our stockholders. Key factors considered in connection with the selection of director nominees are independence, critical thinking skills, practical wisdom and mature judgment in the decision-making process. Our Board composition reflects our commitment to include individuals from diverse backgrounds and with diverse experience, and the members of our Nominating and Governance Committee are mindful of that objective when they nominate directors for election. Our Board composition also reflects the Nominating and Governance Committee’s determination as to the appropriate size of the Board to facilitate effective communication and cooperation.

Important information about our corporate governance practices, the responsibilities and functioning of the Board and its committees, director compensation and related party transactions is found elsewhere in this proxy statement. We encourage you to review this information in connection with your decisions on the election of the director nominees.

The information set forth below includes, with respect to each nominee and each continuing director, his or her age as of the Record Date, principal occupation and employment during the past five years, the year in which he or she first became one of our directors, and other public company directorships held by such person during the last five years. Further, the independence status of each nominee and each continuing director, as determined by the Board of Directors in accordance with the standards set forth in our Corporate Governance Guidelines and the listing standards of NASDAQ, is provided below. A director or director nominee designated below as a “member-director” is a director employed by a Premier stockholder hospital or health system or by a group affiliate or other non-provider organization affiliated with one or more Premier member facilities participating in our group purchasing program, which we refer to as our “member owners,” and, because of such relationship, is not deemed to be independent. Each of our directors also serves on the board of managers of Premier Services, LLC, a wholly-owned subsidiary of Premier and the general partner of Premier LP.

 

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In addition to the experience, qualifications, attributes and skills of each nominee and continuing director outlined below, which have led the Board to conclude that such person should serve as a member of the Board, our Board believes that each nominee and each continuing director has demonstrated broad-based business knowledge, outstanding achievement in his or her professional career, commitment to ethical and moral values, personal and professional integrity, sound business judgment and a commitment to corporate citizenship.

Directors Standing for Election

Nominees to Serve as Class II Directors until the 2021 Annual Meeting

 

Barclay E. Berdan    65    Member-Director

Mr. Berdan has been a director of Premier since December 2015. He has been the Chief Executive Officer of Texas Health Resources since 2014. Prior to that, Mr. Berdan served in various executive roles with Texas Health Resources since 1986, including Chief Operating Officer, Senior Executive Vice President, President of Texas Health Harris Methodist Fort Worth and Vice President of Harris Methodist Southwest Hospital Fort Worth. He previously held leadership and administrative positions with American Medical International, Inc., Northwestern Memorial Hospital and Jackson Park Hospital. Mr. Berdan is a Fellow of the American College of Healthcare Executives and received the Texas Hospital Association’s 2013 Earl M. Collier Award for Distinguished Healthcare Administrator. He serves on the executive committee of the Healthcare Leadership Council and as chair of the American Excess Insurance Exchange Risk Retention Group. He served as chair of the 2016-17 United Way Campaign of Tarrant County, Texas and as past Chair of the Texas Association of Volunteer Hospitals, the American Heart Association of Tarrant County and the Texas Hospital Association. Mr. Berdan received a bachelor’s degree from Texas Christian University and a Master of Business Administration with a specialization in hospital administration from the University of Chicago. We believe that Mr. Berdan’s qualifications to serve on our Board of Directors include his approximately 42 years of experience in the healthcare industry, his strong background in healthcare and healthcare management and his leadership experience serving in executive positions at large healthcare systems.

Committee Membership: Finance Committee

 

William E. Mayer    78    Independent Director

Mr. Mayer has served as a member of the Board of Directors of Premier since May 2013 and was a member of the board of directors of PHSI and the board of managers of Premier Plans from 1997 to 2013. Since 1999, Mr. Mayer has served as a partner and founder of Park Avenue Equity Partners in New York. Mr. Mayer currently serves as a member of the boards of directors of BlackRock Capital Investment Corporation, a NASDAQ-listed company, Lee Enterprises, Incorporated, a New York Stock Exchange (“NYSE”)-listed company, and Rosehill Resources, Inc., a NASDAQ-listed company. During his extensive career, Mr. Mayer has been a member of the boards of directors of numerous other publicly-traded and privately held companies. Mr. Mayer was Chairman of the Aspen Institute from 2000 to 2008 and is currently on the Board of Trustees. He also serves on the board of Miller Buckfire & Co., Lirio, Inc., Rubin Museum, Friends of Florence and Atlantic Council. Mr. Mayer also serves as a member of the board of governors at the Pardee RAND Graduate School, as a member of the Council on Foreign Relations and as the Vice Chairman of the Middle East Investment Initiative. Mr. Mayer was named to the 2013 National Association of Corporate Directors, which honors leaders in corporate governance and in the boardroom. He obtained his bachelor’s degree and Master of Business Administration from the University of Maryland. We believe Mr. Mayer’s qualifications to serve on our Board of Directors include his approximately 33 years of experience in financial and senior executive positions at various companies and his experience serving on the boards of several publicly-traded companies.

 

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Committee Memberships : Compensation Committee (Chair), Finance Committee and Member Agreement Review Committee (Chair)

 

Scott Reiner    54    Member-Director

Mr. Reiner has been a director of Premier since December 2015. Since 2014, Mr. Reiner has been the Chief Executive Officer of Adventist Health, a hospital system serving more than 75 communities in California, Oregon, Washington and Hawaii. Mr. Reiner previously served in various executive roles with Adventist Health, including Executive Vice President and Chief Operating Officer from 2011 to 2014 and Senior Vice President from 2007 to 2011. Prior to Adventist Health, he served as President and Chief Executive Officer of Glendale Adventist Medical Center and served in executive positions with General Health System, Tennessee Christian Medical Center and Affiliated Physicians Medical Group. Mr. Reiner serves on the boards of directors of Adventist Health, California Hospital Association, Loma Linda University Health and Loma Linda University Medical Center and previously served on the board of directors of American Hospital Association Region Nine. He is a registered nurse and received a bachelor’s degree from Pacific Union College, a Master of Science in Health Administration from California State University, Northridge and a Certificate in Managed Care Administration from the University of Missouri. We believe that Mr. Reiner’s qualifications to serve on our Board of Directors include his approximately 30 years of experience in the healthcare industry, his strong background in healthcare and healthcare management and his leadership experience serving in executive positions at large healthcare systems.

Committee Membership: Nominating and Governance Committee

 

Terry D. Shaw    56    Member-Director

Mr. Shaw has served as a member of the Board of Directors of Premier since May 2013 and has served as the Vice Chairman of the Board of Directors of Premier since July 2015. Mr. Shaw was a member of the board of directors of PHSI and the board of managers of Premier Plans from 2012 to 2013. Since 2017, Mr. Shaw has served as the Chief Executive Officer of Adventist Health System, a nine-state health system headquartered in Florida. Prior to that, he served at Adventist Health System from 2000 to 2010 as the Senior Vice President and Chief Financial Officer and from 2010 to 2017 as Executive Vice President, Chief Financial Officer and Chief Operations Officer. Mr. Shaw is currently a member of the American College of Healthcare Executives, the Healthcare Leadership Council and several other professional and service organizations. Mr. Shaw currently serves as a member of the boards of directors of AMITA Health, Florida Hospital and Adventist Health System. Mr. Shaw obtained a bachelor’s degree from Southern Adventist University and his Master of Business Administration from the University of Central Florida. We believe Mr. Shaw’s qualifications to serve on our Board of Directors include his approximately 22 years of experience in the healthcare industry, his strong background in finance, healthcare and healthcare management and his leadership experience serving in executive positions at a large healthcare system.

Committee Memberships: Nominating and Governance Committee (Chair) and Finance Committee

 

Richard J. Statuto    61    Member-Director

Mr. Statuto has served as a member and Chairman of the Board of Directors of Premier since May 2013. He was a member of the board of directors of PHSI and the board of managers of Premier Plans from 2011 to 2013. From 2005 to September 2018, Mr. Statuto served as the President and Chief Executive Officer of Bon Secours Health System, which had more than 30 facilities in seven states in the eastern United States. Mr. Statuto currently serves as an advisor to Bon Secours Mercy Health, primarily focused on strategic growth and innovation. He served as President and Chief Executive Officer of St. Joseph Health System from 1995 to 2004. Mr. Statuto currently serves as a member of the boards of directors of the Catholic Medical Mission Board and the Innovation Institute. Mr. Statuto previously served as Chairman of the board of directors of Catholic Health Association and as Vice Chairman of the board of directors of Christus Health System. Mr. Statuto received his

 

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bachelor’s degree in chemical engineering from Vanderbilt University and his Master of Business Administration from Xavier University. We believe Mr. Statuto’s qualifications to serve on our Board of Directors include his approximately 33 years of experience in the healthcare industry, his strong background in healthcare and healthcare management and his leadership experience serving in executive positions at large healthcare systems.

Committee Memberships: Compensation Committee and Finance Committee

 

Ellen C. Wolf    64    Independent Director

Ms. Wolf has been a director of Premier since October 2013. Ms. Wolf served as Senior Vice President and Chief Financial Officer of American Water Works Company, Inc., the largest investor-owned U.S. water and wastewater company, from 2006 until 2013. She served as Senior Vice President and Chief Financial Officer of USEC, Inc. beginning in 2003 and as Vice President and Chief Financial Officer of American Water Works from 1999 to 2003. Prior to that, since beginning her career in 1979, Ms. Wolf held various positions with increasing responsibility in corporate accounting, finance and business development. She has served as a director of Connecticut Water, a NASDAQ-listed company, since 2015, as a director and Chair of the audit committee of InfraREIT, L.L.C., a NYSE-listed company, since 2014, and previously as a director of Airgas, Inc., a NYSE-listed company, from 2008 to May 2016. Ms. Wolf also serves on the board of the Philadelphia Zoo. Ms. Wolf obtained a bachelor’s degree from Duke University and a Master of Business Administration from the University of Pennsylvania. We believe that Ms. Wolf’s qualifications to serve on our Board of Directors include her strong financial, corporate accounting, business development and leadership experience through her service in corporate senior executive positions, her service on the audit committee of another publicly-traded company and her prior service on the audit and compensation committees of a privately-held company.

Committee Memberships: Audit and Compliance Committee (Chair), Conflict Advisory Committee, Nominating and Governance Committee and Member Agreement Review Committee

Board Recommendation

The Board of Directors unanimously recommends a vote “FOR” the election of each of the director nominees named above.

In accordance with the Board’s recommendation, the proxy holders will vote the shares of Class A common stock covered by valid and timely received proxies “FOR” the election of each of the Class II director nominees set forth above, unless instructed otherwise. The Trustee will vote all of the Class B common stock as a block in the manner determined by the plurality of the votes timely received by the Trustee.

Other Directors Not Standing for Election at this Meeting

Directors who will continue to serve after the 2018 Annual Meeting are:

Class III Directors with Terms Expiring at the 2019 Annual Meeting

 

Susan D. DeVore    59    Employee-Director

Ms. DeVore has served as the President and Chief Executive Officer and as a member of the Board of Directors of Premier since May 2013. She has served in the same positions at PHSI and the general partner of Premier LP and also as a member of the board of directors of PHSI since 2009. She also served as a member of the board of managers of Premier Plans from 2009 to 2013. Ms. DeVore served as the Chief Operating Officer of PHSI from 2006 to 2009 and as the Chief Operating Officer for a number of other Premier entities from 2007 to 2009. Ms. DeVore’s previous executive experience includes over 20 years at Ernst & Young LLP, where she served as a Senior Healthcare Industry Management Practice Leader. Since February 2018, she has served as a member of the board of directors and the audit committee of Unum Group, a NYSE-listed company that provides financial

 

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protection benefits in the United States and the United Kingdom. Ms. DeVore also serves as a member of the board of directors or as a member of the following non-profit and state-based organizations: Healthcare Leadership Council, Coalition to Protect America’s Healthcare, Medicare Rights Center, Charlotte Chamber of Commerce, the Institute of Medicine Roundtable on Value and Science Driven Healthcare and UNC Charlotte. Ms. DeVore also serves as a non-voting member of the audit and finance committees of the board of directors of Adventist Health System. Ms. DeVore obtained a bachelor’s degree from the University of North Carolina at Charlotte and a Master of Management from McGill University. We believe Ms. DeVore’s qualifications to serve on our Board of Directors include her approximately 33 years of experience in senior positions involving hospital strategy, large-scale operations transformation, quality improvement and financial management.

Committee Membership: Member Agreement Review Committee

 

Jody R. Davids    62    Independent Director

Ms. Davids has been a director of Premier since January 2015. Since April 2016, Ms. Davids has been the Senior Vice President and Global Chief Information Officer of PepsiCo, Inc., a NYSE-listed company that has a global portfolio of food and beverage brands. From April 2014 to April 2016, Ms. Davids served as the Chief Information Officer of Agrium, Inc., a NYSE-listed company and Toronto Stock Exchange-listed company that is a global producer and marketer of nutrients for agricultural and industrial markets. From December 2013 to April 2014, Ms. Davids served as a management consultant to Agrium, providing information technology consulting services specializing in technology and organizational strategy. From 2010 to 2013, Ms. Davids was the Senior Vice President, Global Business Services and Chief Information Officer for Best Buy, Inc., a NYSE-listed company. From 2000 to 2009, Ms. Davids was with Cardinal Health, Inc., a NYSE-listed company, in various capacities including as the Executive Vice President, Global Shared Services and Chief Information Officer from 2007 to 2009 and the Executive Vice President and Chief Information Officer from 2003 to 2007. Ms. Davids obtained a bachelor’s degree and a Master of Business Administration from San Jose State University. We believe that Ms. Davids’ qualifications to serve on our Board of Directors include her strong background in information technology, cybersecurity risk management, supply chain, logistics and distribution and her leadership experience serving in corporate senior executive positions of other publicly-traded companies.

Committee Memberships: Audit and Compliance Committee and Conflict Advisory Committee

 

Peter S. Fine    66    Member-Director

Mr. Fine has been a director of Premier since October 2013. He served previously on the board of directors of PHSI from 2003 through 2009. Since 2000, Mr. Fine has served as the President and Chief Executive Officer of Banner Health. Mr. Fine also currently serves as a member of the board of directors of Banner Health. In addition, he previously served on the boards of directors of Accuray Incorporated and the Translational Genomics Research Institute and as member of the Heard Museum board of trustees. Mr. Fine received his bachelor’s degree from Ohio University and Master of Arts in Healthcare Administration from George Washington University. We believe Mr. Fine’s qualifications to serve on our Board of Directors include his approximately 40 years of experience in the healthcare industry, his strong background in healthcare and healthcare management and his leadership experience serving in executive positions at a large healthcare system.

Committee Membership: Finance Committee (Chair)

 

David H. Langstaff    64    Independent Director

Mr. Langstaff has been a director of Premier since September 2016. Mr. Langstaff has served as the President of Argotyche, Inc., a consulting and advisory services company, since 2013. Beginning in 2018, Mr. Langstaff assumed the position of Interim Executive Vice President at The Aspen Institute, overseeing all Leadership Programs. Mr. Langstaff serves on the Board of Directors of Boston Dynamics, an American engineering and

 

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robotics design company and a subsidiary of SoftBank Group. He also is Chairman of the Special Security Agreement Board of Idemia National Security Solutions LLC, a subsidiary of Idemia, the France-based global leader in Augmented Identity, and has been President of Higher Ground LLC since 2018. Mr. Langstaff served as a member of the board of directors of TASC, Inc., a defense contractor, from 2009 to 2013, as Chairman from 2009 to 2011, and as President and Chief Executive Officer from 2011 to 2013. Prior to TASC, Mr. Langstaff was founder, President and Chief Executive Officer and a director of Veridian Corporation, a NYSE-listed company specializing in mission-critical national security programs, from 1995 until 2003, and Chief Executive Officer and Co-Chairman of The Olive Group, a global integrated security company, from 2006 until 2007. He served on the board of directors of SRA International (later known as CSRA Inc. prior to its acquisition by General Dynamics), a NYSE-listed company, from 2004 to 2010 and on the board of directors of QinetiQ Group PLC, a company listed on the London Stock Exchange, from 2009 to 2011. Mr. Langstaff also served on the Defense Business Board, which provides independent advice to the Secretary and Deputy Secretary of Defense, and has been associated with The Aspen Institute since 1998, serving as Chair of the Advisory Board of the Business and Society Program since 2006 and as a Senior Moderator of the Aspen Global Leadership Network since 2010. Mr. Langstaff obtained a bachelor’s degree, cum laude, and a Master of Business Administration from Harvard University. We believe that Mr. Langstaff’s qualifications to serve on the Company’s Board include his strong background serving as senior executive of a variety of technology companies and his prior board and committee service with other publicly-traded companies.

Committee Memberships: Audit and Compliance Committee, Conflict Advisory Committee and Member Agreement Review Committee

 

Marvin R. O’Quinn    66    Member-Director

Mr. O’Quinn has been a director of Premier since August 2015. Mr. O’Quinn has been the Senior Executive Vice President and Chief Operating Officer of Dignity Health in San Francisco, California since 2009. Prior to joining Dignity Health, Mr. O’Quinn served as President and Chief Executive Officer of Jackson Health System in Miami, Florida. Before assuming his role at Jackson Health System, Mr. O’Quinn served as Executive Vice President and Chief Operating Officer of Atlantic Health System in Florham Park, New Jersey and held executive positions with New York Presbyterian Health System, Providence Medical Center and Providence Milwaukee Hospital in Portland, Oregon. Additionally, he has held key positions with other hospitals and medical centers in Portland, Fresno and Seattle. He holds board appointments with Charles Drew University of Medicine and Science (Chairman), PriMed/Hill Physicians, Francisco Partners and Ministry Leadership Center. Mr. O’Quinn received a bachelor’s degree and a Master of Health Administration from the University of Washington. We believe that Mr. O’Quinn’s qualifications to serve on our Board of Directors include his approximately 39 years of experience in the healthcare industry, his strong background in healthcare and healthcare management and his leadership experience serving in executive positions at large healthcare systems.

Committee Membership: Nominating and Governance Committee

Class I Directors with Terms Expiring at the 2020 Annual Meeting

 

Eric J. Bieber, MD    58    Member-Director

Dr. Bieber has been a director of Premier since June 2015. Dr. Bieber has been the President and Chief Executive Officer of Rochester Regional Health System since November 2014. From 2010 until November 2014, he served in several roles at University Hospitals in Cleveland, Ohio, and most recently was the President of Community Hospitals West Region and President of University Hospitals Accountable Care Organizations. Prior to his time with University Hospitals, from 2001 to 2009, Dr. Bieber served in various positions with Geisinger Health Systems in Danville, Pennsylvania, including Chief Medical Officer, Geisinger Wyoming Valley, and Chairman and Medical Director, Women’s Health. Since May 2016, Dr. Bieber has served as a member of the board of governors of the Greater New York Hospital Association, Inc. Clinically, Dr. Bieber was an Obstetrician/

 

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Gynecologist and Reproductive Endocrinologist. Dr. Bieber received a bachelor’s degree from Illinois Wesleyan University and his Doctor of Medicine Degree from Loyola University’s Stritch School of Medicine. He also holds a master’s degree in Microbiology from Illinois State University and a master’s degree in Healthcare Management from Harvard University. We believe that Dr. Bieber’s qualifications to serve on our Board include his approximately 32 years of experience in the healthcare industry, his strong background in healthcare and healthcare management and his leadership experience serving in executive positions at large healthcare systems.

Committee Membership: Nominating and Governance Committee

 

Stephen R. D’Arcy    63    Independent Director

Mr. D’Arcy has been a director of Premier since October 2013. Mr. D’Arcy has served as a Partner of Quantum Group LLC, an investment and consulting firm, since 2010. Previously, he worked for 34 years at PricewaterhouseCoopers LLP, a multinational professional services firm, serving most recently as Global Automotive Leader from 2002 to 2010. He served on the board of directors of Vanguard Health Systems Inc., a company previously listed on the NYSE, from 2011 to 2013. Since 2016, Mr. D’Arcy has served as a director and audit committee member (committee chair since 2017) of the board of Navistar International Corporation, a NYSE-listed company. In addition, he serves on the boards of Penske Corporation and the Hudson-Webber Foundation and served as Non-Executive Chairman of the board of trustees of The Detroit Medical Center from 2006 to 2010. Mr. D’Arcy obtained a bachelor’s degree in Business Administration from the University of Michigan. We believe Mr. D’Arcy’s qualifications to serve on our Board of Directors include his strong financial, corporate accounting, business development and leadership experience, his current service on the audit committee of a publicly-traded company, his previous service as Chairman of the audit committee of a publicly-traded healthcare company and his service on the boards at several privately-held companies and enterprises.

Committee Memberships: Audit and Compliance Committee, Conflict Advisory Committee and Compensation Committee

 

William B. Downey    59    Member-Director

Mr. Downey has been a director of Premier since June 2015. Mr. Downey has been the President and CEO of Riverside Health System in Newport News, Virginia since January 2012. He served in various other roles with Riverside Health System from 2001 to 2011, including Executive Vice President and Chief Operating Officer. Mr. Downey is a Fellow of the American College of Healthcare Executives. He currently serves on the boards of directors of Greater Peninsula NOW, Virginia Chamber of Commerce, Jamestown/Yorktown Foundation, Inc., The Virginia Hospital and Healthcare Association, Virginia Symphony Organization, United Way of the Virginia Peninsula and on the advisory board of TowneBank – Peninsula. Mr. Downey received a bachelor’s degree from James Madison University and a master’s degree in Health Administration from Virginia Commonwealth University/Medical College of Virginia. We believe that Mr. Downey’s qualifications to serve on our Board of Directors include his approximately 33 years of experience in the healthcare industry, his strong background in healthcare and healthcare management and his leadership experience serving in executive positions at a large healthcare system.

Committee Membership: Nominating and Governance Committee

 

Philip A. Incarnati    64    Member-Director

Mr. Incarnati has been a director of Premier since October 2013. Since 1989, Mr. Incarnati has served as the President and Chief Executive Officer, and as a member of the board of directors, of McLaren Health Care Corporation. Mr. Incarnati previously served as a member of the boards of directors of Anthelio HealthCare Solutions, Inc., King Pharmaceuticals, McKesson Corporation, Reliant Renal Care, Inc. and the Medical Staffing Network, and as Chair of the Eastern Michigan University board of regents. Mr. Incarnati received his bachelor’s

 

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degree and Master of Management and Finance from Eastern Michigan University. We believe Mr. Incarnati’s qualifications to serve on our Board of Directors include his approximately 41 years of experience in the healthcare industry, his strong background in healthcare and healthcare management and his leadership experience serving in executive positions at a large healthcare system.

Committee Membership: Finance Committee

 

Marc D. Miller    48    Member-Director

Mr. Miller has been a director of Premier since August 2015. Mr. Miller has been the President of Universal Health Services, Inc., a NYSE-listed company headquartered in King of Prussia, Pennsylvania, since 2009. Prior to that, Mr. Miller served in various executive roles with Universal Health Services, as well as in key positions with Central Montgomery Medical Center, Wellington Regional Medical Center, The George Washington University Hospital and Mayo Clinic. He has served on the board of directors of Universal Health Services since 2006 and on the board of trustees of Universal Health Realty Income Trust, a NYSE-listed company, since 2008. Mr. Miller received a bachelor’s degree from the University of Vermont and a Master of Business Administration with a concentration in healthcare management and finance from The Wharton School at the University of Pennsylvania. We believe that Mr. Miller’s qualifications to serve on our Board of Directors include his approximately 23 years of experience in the healthcare industry, his strong background in healthcare and healthcare management, his leadership experience serving in executive positions at large healthcare systems and his public company experience.

Committee Membership: Compensation Committee

There are no family relationships between any of our executive officers, directors and director nominees. The business address of each of our directors and director nominees is 13034 Ballantyne Corporate Place, Charlotte, NC 28277

 

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ITEM 2 – RATIFICATION OF APPOINTMENT OF

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Appointment of Ernst & Young LLP

In accordance with its charter, the Audit and Compliance Committee selected the firm of Ernst & Young LLP (“EY”) to be our independent registered public accounting firm for the fiscal year 2019 audit period and, with the endorsement of the Board of Directors, recommends to our stockholders that they ratify that appointment. The Audit and Compliance Committee will reconsider the appointment of EY for the next audit period if such appointment is not ratified. Representatives of EY are expected to attend the Annual Meeting, will have the opportunity to make a statement if they desire and are expected to be available to respond to appropriate questions.

The Audit and Compliance Committee recognizes the importance of maintaining the independence of our independent registered public accounting firm, both in fact and appearance. Consistent with its charter, the Audit and Compliance Committee has evaluated EY’s qualifications, performance and independence, including that of the lead audit partner. The Audit and Compliance Committee reviews and approves, in advance, the audit scope, the types of non-audit services, if any, and the estimated fees for each category for the coming year. For each category of proposed service, EY is required to confirm that the provision of such services does not impair its independence. Before selecting EY, the Audit and Compliance Committee carefully considered that firm’s qualifications as an independent registered public accounting firm. This included a review of its performance in prior years, as well as its reputation for integrity and competence in the fields of accounting and auditing. The Audit and Compliance Committee has expressed its satisfaction with EY in all of these respects. The Audit and Compliance Committee’s review included inquiry concerning any litigation involving EY and any proceedings by the SEC against the firm, if any. In this respect, the Audit and Compliance Committee has concluded that the ability of EY to perform services for Premier is in no way adversely affected by any such investigation or litigation.

Audit and Compliance Committee Pre-Approval of Accounting Services

The Audit and Compliance Committee of our Board of Directors is responsible for the appointment, oversight and evaluation of our independent registered public accounting firm. In accordance with our Audit and Compliance Committee’s charter, our Audit and Compliance Committee must approve, in advance of the service, all audit and permissible non-audit services provided by our independent registered public accounting firm. Our independent registered public accounting firm may not be retained to perform the non-audit services specified in Section 10A(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Audit and Compliance Committee has concluded that provision of the non-audit services described in that section is not compatible with maintaining the independence of EY.

The Audit and Compliance Committee has established a policy regarding pre-approval of audit and permissible non-audit services provided by our independent registered public accounting firm, as well as all engagement fees and terms for our independent registered public accounting firm. Under the policy, the Audit and Compliance Committee must approve the services to be rendered and fees to be charged by our independent registered public accounting firm. Typically, the Audit and Compliance Committee approves services up to a specific amount of fees. The Audit and Compliance Committee must then approve, in advance, any services or fees exceeding those pre-approved levels, subject to the de minimis exception set forth in Section 10A(i)(1)(B) of the Exchange Act. The Audit and Compliance Committee may delegate general pre-approval authority to a subcommittee of which the chair of the Audit and Compliance Committee is a member. All requests or applications for services to be provided by our independent registered public accounting firm must be submitted to specified officers who may determine whether such services are included within the list of pre-approved services. All requests for services that have not been pre-approved must be accompanied by a statement that the request is consistent with the independent registered public accounting firm’s independence from Premier.

 

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Principal Accounting Fees and Services

The following table presents the fees billed to Premier and its subsidiaries for services rendered by EY for the fiscal years ended June 30, 2018 and 2017.

 

     FY 2018      FY 2017  
     (in thousands)  

Audit Fees (1)

   $ 3,760      $ 3,845  

Audit-Related Fees (2)

     534        704  

Tax Fees (3)

     115        147  
  

 

 

    

 

 

 

Total (4)

   $ 4,409      $ 4,696  

 

(1)

Represents audit fees billed in each of fiscal years 2018 and 2017. Audit fees in fiscal years 2018 and 2017 include the audit of our consolidated financial statements, the audit of our internal control over financial reporting, consent for the registration of securities with the SEC (in fiscal year 2018 only), and services provided in connection with the review of our quarterly condensed consolidated financial statements included in our SEC filings.

(2)

Represents audit-related fees billed in each of fiscal years 2018 and 2017. Audit-related fees in fiscal years 2018 and 2017 principally related to professional services in connection with financial due diligence, internal controls and other services that are traditionally performed by our independent registered public accounting firm.

(3)

Represents tax fees billed in each of fiscal years 2018 and 2017. Tax fees in fiscal years 2018 and 2017 principally related to domestic tax compliance and other tax-related consulting services.

(4)

In fiscal years 2018 and 2017, EY did not provide any products or services that would be required to be disclosed under “all other fees” in the table above. In fiscal years 2018 and 2017, the Audit and Compliance Committee did not approve any services or fees pursuant to the de minimis exception set forth in Section 10A(i)(1)(B) of the Exchange Act.

Board Recommendation

The Board of Directors unanimously recommends a vote “FOR” the ratification of the appointment of EY to serve as our independent registered public accounting firm for our fiscal year ending June 30, 2019.

In accordance with the Board’s recommendation, the proxy holders will vote the shares of Class A common stock covered by valid and timely received proxies “FOR” the ratification of the appointment of EY to serve as our independent registered public accounting firm for our fiscal year ending June 30, 2019, unless instructed otherwise. The Trustee will vote all of the Class B common stock as a block in the manner determined by the majority of the votes timely received by the Trustee.

 

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ITEM 3 – APPROVAL OF THE AMENDED AND RESTATED

PREMIER, INC. 2013 EQUITY INCENTIVE PLAN

INCLUDING AN INCREASE IN THE NUMBER OF SHARES OF CLASS A COMMON

STOCK AUTHORIZED FOR ISSUANCE UNDER THE PLAN

Overview

We currently maintain the Premier, Inc. 2013 Equity Incentive Plan, as amended and restated effective December 1, 2017 (which we refer to in this Proposal as the “Current Plan”), for the benefit of our eligible employees, non-employee directors and certain other service providers. The Current Plan was originally adopted and approved by our stockholders prior to our IPO in October 2013 and was most recently amended on December 1, 2017 after approval by our stockholders at our 2017 Annual Meeting of Stockholders.

We are asking stockholders to approve an amended and restated version of the Premier, Inc. 2013 Equity Incentive Plan (which we refer to in this Proposal as the “Amended Plan”). The purpose of this proposal is to increase the shares available for grant and to make certain other amendments that we believe are beneficial, including changes in light of the Tax Cuts and Jobs Act (“TCJA”) enacted on December 22, 2017. The Compensation Committee recommended, and the Board approved on September 25, 2018, the Amended Plan, subject to stockholder approval at the Annual Meeting. If this proposal is approved by stockholders at the Annual Meeting, the Amended Plan will become effective on December 7, 2018. We are not extending the term of the Current Plan, and no award will be granted under the Amended Plan on or after September 24, 2023.

The Board of Directors believes that approving the Amended Plan is in the best interests of stockholders and Premier because equity awards granted under the Plan help to attract, motivate and retain key talent, align employee and stockholder interests, link employee compensation to our performance and maintain a culture based on employee stock ownership. The Current Plan is our only plan for providing equity incentive compensation to our employees. If the Amended Plan is not approved by stockholders, then the Current Plan will remain in place and there will be no increase to the share reserve. Equity is a significant component of total compensation for many of our key employees.

The text of the Amended Plan, in the form in which it would become effective upon approval of this proposal by stockholders, appears at the end of this proxy statement as Appendix A and is marked to reflect changes from the Current Plan. The following description of the Amended Plan should be read in conjunction with, and is qualified in its entirety by reference to, the full text of the Amended Plan.

Proposed Amendments to the Current Plan and Our Rationale

Increasing the Number of Shares Reserved for Issuance

The Current Plan sets forth a maximum number of shares authorized for issuance. The Board is requesting that stockholders approve the addition of 3,500,000 shares of Class A common stock to the share reserve under the Amended Plan. As of September 30, 2018, 3,046,831 shares remained authorized but unissued under the Current Plan. As a result, if this proposal is approved, a total of 6,546,831 shares will be available for issuance under the Amended Plan as of that date. Shares of our Class A common stock may be used to issue any type of award permitted under the Amended Plan. If the requisite stockholder approval is not obtained, the Amended Plan will not take effect. In such event, only 3,046,831 shares will remain authorized for issuance under the Current Plan (of the original 11,260,783 shares authorized) and equity awards may continue to be granted under the Current Plan up to this limit.

Additional Amendments

In addition to the proposed share increase, the Amended Plan includes the following additional amendments:

 

   

An Adjustment to our Minimum Vesting Requirement.  The Current Plan includes a vesting limit that applied to all full value awards and prevented awards granted to employees, other than stock

 

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options and stock appreciation rights (“SARs”), from vesting any more rapidly than pro rata annually over a three-year period. The Amended Plan clarifies that no award may vest before the first anniversary of the grant date. The Amended Plan also extends the minimum three-year pro rata vesting requirement to all employee awards (including stock options, stock appreciation rights and full value awards).

 

   

Explicit Prohibition of Payment of Dividends. The Amended Plan prohibits the payment of dividends and dividend equivalents on restricted stock units prior to vesting.

 

   

TCJA Related Amendments. The Amended Plan includes provisions protecting against an inadvertent loss of grandfathering of existing awards intended to qualify as “performance-based compensation” and allowing new equity-based performance awards going forward, subject to annual limits.

Burn Rate

We believe that our burn rate is reasonable in light of company growth, changes in our business and number of outstanding shares, and ensures our long-term incentive program is externally competitive, motivational and retentive. The following table sets forth information regarding equity awards granted and earned under the Current Plan, the burn rate for each of the last three fiscal years and the average burn rate over the last three years.

 

Burn Rate

 
     Fiscal Year
2018
    Fiscal Year
2017
    Fiscal Year
2016
    3-Year
Average
 

Stock options granted

     560,497       527,294       863,717       650,503  

Time-based restricted stock granted

     261,966       267,127       255,780       261,624  

Performance shares earned

     352,867       1,181,820       0       511,562  

Total

     1,175,330       1,976,241       1,119,497       1,423,689  

Weighted Average Number of Shares of Class A common stock and Class B common stock outstanding

     136,517,897       140,469,563       142,942,246       139,976,569  

Burn Rate (1)

     0.9     1.4     0.8     1.0

 

(1)

Burn rate reflects all stock options and time-based restricted stock granted and all performance shares earned in a fiscal year, divided by the weighted average number of shares of our Class A common stock plus Class B common stock outstanding.

Dilution and Overhang

We manage our long-term stockholder dilution when granting equity awards annually. Overhang is defined as equity awards outstanding but not exercised or earned, plus equity awards available to be granted (“available equity award shares”), divided by total outstanding Class A common stock and Class B common stock, plus the available equity award shares under the Current Plan. As of September 30, 2018, approximately 5,424,344 shares are outstanding but not exercised or earned under the Plan, plus an additional 3,046,831 are available to be granted. If the Amended Plan is approved, an additional 3,500,000 shares would be available for grant under the Plan. Our overhang, if the Amended Plan is approved, as of September 30, 2018, would be 8.2%.

 

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Plan Totals as of September 30, 2018

The following table sets forth information regarding the possible equity grants, if the Amended Plan is approved, along with our shares outstanding as of September 30, 2018.

 

Shares Available as of September 30, 2018

  

Shares

 

New Shares

     3,500,000  

Available Shares

     3,046,831  

Total: New + Available Shares

     6,546,831  

Outstanding Awards

  

Stock Options (1)

     3,234,705  

Restricted Stock Units

     696,263  

Performance Shares

     1,493,376  

Total Outstanding Awards

     5,424,344  

Total: New + Available Shares + Outstanding Awards

     11,971,175  
  

 

 

 

Shares Outstanding

     133,309,602  

 

(1)

Outstanding stock options have a weighted average exercise price of $30.37 and an average remaining term of 6.2 years.

Grant Practices

In addition to responsible utilization of the shares that have been made available for the Amended Plan, the following grant practices demonstrate our stockholder alignment:

 

   

More than half of the CEO’s equity awards allocated to awards with performance conditions

 

   

Clawback policy covering incentive awards

 

   

Three-year vesting periods

 

   

Holding requirements in place until stock ownership guidelines are met

See “Description of Executive Compensation Program Elements—Our Equity Plan—2018 Actions” below for details of our grants to named executive officers for fiscal year 2018.

Summary of the Amended Plan

Purpose

The Amended Plan is intended to attract and retain employees, directors and consultants who will provide services to us, our subsidiaries and our affiliates and to provide such persons with incentives consistent with the long-term success of our business. To accomplish these purposes, the Amended Plan provides for the issuance of stock options, stock appreciation rights, restricted stock, restricted stock units, performance share awards, performance units, other equity-based awards and cash-based awards.

Administration

The Amended Plan is administered by the Compensation Committee of the Board of Directors. Our Compensation Committee determines who receives awards under the Amended Plan, the number of shares of our Class A common stock, share units and/or dollars covered by such awards and the terms and conditions of each award, subject to the minimum vesting restrictions described above. Within the terms of the Amended Plan, our Compensation Committee may accelerate the vesting of any award and modify, cancel or substitute any awards. In addition, our Compensation Committee interprets the Amended Plan and may adopt any administrative rules, regulations, procedures and guidelines governing the Amended Plan or any awards granted under the Amended

 

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Plan as it deems to be appropriate. Our Compensation Committee may delegate to any subcommittee of our Board of Directors the authority to make awards or to our Chief Executive Officer the authority to make awards to employees who are not executive officers.

Available Shares

At the time we established the Current Plan in 2013, we reserved 11,260,783 shares of our Class A common stock for issuance. If this Item 3 proposal is approved by our stockholders at the Annual Meeting, the total number of shares of our Class A common stock available under the Amended Plan will be 14,760,783 shares. As of September 30, 2018, there were approximately 3,046,831 shares available for issuance under the Current Plan. If approved, there would have been approximately 6,546,831 shares available for issuance under the Amended Plan, as of September 30, 2018. These shares may be shares of original issuance, shares held in treasury or shares that have been reacquired by us. The number of our shares of Class A common stock authorized for grant under the Amended Plan is subject to adjustment, as described below. Awards that are to be settled by issuing shares are only counted against the number of shares available under the Amended Plan to the extent shares are actually issued under those awards. Shares withheld to satisfy tax withholding obligations or tendered to pay the exercise price of an option under the Amended Plan and shares repurchased on the open market with the proceeds of an option exercise shall again be available for grant under the Plan.

Non-Employee Director Compensation

The aggregate value of equity awards granted to, and cash compensation earned by, any individual non-employee director during any calendar year may not exceed $500,000. The value of equity granted to a non-employee director is determined as of the grant date. With respect to stock options and stock appreciation rights, the equity value is determined based on the pricing model we use to report our financial results and assumptions set forth in our SEC filings. With respect to other equity awards, the equity value is the fair market value of a share of our Class A common stock as of the grant date. See “Fiscal Year 2018 Director Compensation Table” under “—Compensation of Directors” below for further information regarding our director compensation practices during fiscal year 2018.

Eligibility for Participation; Minimum Vesting and Performance Cycle

Our Compensation Committee may grant awards to employees and consultants; provided, however, only employees shall be eligible to receive incentive stock options (“ISOs”). Our Board of Directors may also grant awards to non-employee directors. As of September 30, 2018, approximately 350 employees and 15 non-employee directors were eligible to receive awards under the Amended Plan. Under the Amended Plan, the minimum vesting requirement generally prohibits the vesting of any awards before the first anniversary of their grant. In addition, for employee awards, the Amended Plan generally prohibits (i) vesting more rapidly than pro rata over a three-year period and (ii) performance cycles of less than one year.

Award Agreement

Awards granted under the Amended Plan will be evidenced by award agreements, which need not be identical, that provide additional terms, conditions, restrictions and/or limitations covering the grant of the award, including, without limitation, additional terms providing for the acceleration of exercisability or vesting of awards in the event of a change of control or conditions regarding the participant’s employment, as determined by the Compensation Committee in its sole discretion.

Nonqualified Stock Options

An award of a nonqualified stock option grants a participant the right to purchase a certain number of shares of our Class A common stock during a specified term in the future, after a vesting period, at an exercise price equal

 

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to at least 100% of the fair market value of a share of our Class A common stock on the grant date. The term of a nonqualified stock option may not exceed 10 years from the date of grant. The exercise price may be paid, in the Compensation Committee’s sole discretion, with cash or check, shares of our Class A common stock already owned by the participant, a reduction in shares issuable upon exercise which have a value equal to the exercise price, (to the extent permitted by law) with proceeds from a sale of shares from broker-assisted cashless exercise, any other consideration deemed appropriate by the Compensation Committee or any combination of the foregoing, in each case as permitted by the Compensation Committee. A nonqualified stock option is an option that does not meet the qualifications of an ISO, as provided in Section 422 of the Internal Revenue Code of 1986 (the “Code”) and summarized in part below.

Incentive Stock Options

An ISO is a stock option that meets the requirements of Section 422 of the Code, which generally include that the option have an exercise price of no less than 100% of fair market value of a share of our Class A common stock on the grant date, have a term of no more than 10 years and be granted from a plan that has been approved by stockholders.

Stock Appreciation Rights

A SAR entitles the participant to receive a percentage (up to 100%) of the difference between the fair market value of our Class A common stock on the exercise date and the exercise price of the SAR, multiplied by the number of shares subject to the SAR. Payment to a participant upon the exercise of a SAR may be in cash or shares of our Class A common stock, as designated by the Compensation Committee. No SAR may be exercised more than 10 years from the date of grant.

Restricted Stock

A restricted stock award is an award of outstanding shares of our Class A common stock that does not vest until after a specified period of time, or satisfaction of other vesting conditions as determined by our Compensation Committee, and which may be forfeited if conditions to vesting are not met. Participants are generally entitled to vote the shares underlying their awards, but will not be entitled to dividends or dividend equivalents under the Amended Plan prior to vesting.

Restricted Stock Units

A restricted stock unit is an award denominated and settled in shares of our Class A common stock, subject to terms and conditions determined by our Compensation Committee. Participants do not have voting rights, but our Compensation Committee may authorize the award of dividend equivalents that accumulate until the vesting of the award.

Other Stock-Based Awards

The Amended Plan provides our Compensation Committee the discretion to grant other awards payable in shares of our Class A common stock, such as deferred stock units and unrestricted shares. In the event of such an award, the Compensation Committee would determine the terms and conditions of such award, including any vesting criteria applicable thereto.

Cash-Based Awards

A cash-based award is a cash-denominated award which the Compensation Committee may grant to participants, subject to conditions determined by the Compensation Committee, which conditions may include the achievement of individual or company performance objectives. Each cash-based award will specify a payment

 

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amount, formula or payment ranges as determined by the Compensation Committee. Payment with respect to any cash-based award shall be made in cash. The Compensation Committee may grant cash-based awards to some or all employees in addition to awards under the Amended Plan.

Performance Share Awards

The Amended Plan authorizes our Compensation Committee to grant performance share awards, which may be payable in shares, share units or cash. We intend to continue to grant performance share awards. Performance share awards vest and become payable upon the achievement of performance objectives within a period of time specified by our Compensation Committee. Performance share awards may be subject to the achievement of specified performance objectives. Performance objectives may be described in terms of company-wide objectives or objectives that are related to the performance of the individual participant or a subsidiary, division, department or function within our company or a subsidiary of ours in which the participant is employed. Performance objectives may be measured on an absolute or relative basis, and relative performance may be measured by a group of peer companies or by a financial market index. The Amended Plan generally provides the Compensation Committee discretion to modify performance goals as it deems appropriate or increase or decrease the amount payable at a given level of performance.

Tax Cuts and Jobs Act and Grandfathered Awards

The TCJA expands the number of individuals covered by Section 162(m) of the Code (“Section 162(m)”) and eliminates the Section 162(m) “performance-based compensation” exception for taxable years beginning after December 31, 2017, except for otherwise qualified compensation payable pursuant to a written binding contract in effect on November 2, 2017 that is not subsequently materially modified (collectively, “Grandfathered Awards”). While the Compensation Committee currently intends that Grandfathered Awards will be administered consistent with being exempt from the $1 million compensation limitation, no assurance can be given as to whether awards that are intended to qualify for the Section 162(m) performance-based compensation exception under the Current Plan will be deductible under the applicable transition relief guidance. See “Certain U.S. Federal Income Tax Consequences—Deductions” below for a more detailed discussion of the TCJA as it relates to Section 162(m). In any event, the Compensation Committee retains full discretion to grant non-deductible awards under the Amended Plan.

Annual Limits

The annual limits in the Current Plan will continue to apply under the Amended Plan. The maximum number of shares of our Class A common stock with respect to which any stock option or SAR may be granted under the Amended Plan during any calendar year is 500,000. The maximum number of shares subject to full value awards (awards other than stock options and SARs) granted to any eligible individual during any calendar year is 500,000, or if the full value award is paid in cash, other securities or other property, no more than the value of 500,000 shares (calculated on the last day of the performance cycle to which the award relates). The maximum value of a cash payment made under a performance award granted during a calendar year is $3,000,000 if the performance cycle is 12 months and $6,000,000 if the performance cycle is more than 12 months.

Change in Control

Except as otherwise provided in an award agreement, in the event of a Change in Control (as defined in the Amended Plan), the Compensation Committee may, but will not be obligated to, (i) accelerate, vest or cause the restrictions to lapse with respect to all or any portion of an award; (ii) cancel awards for a cash payment equal to their fair value (as determined in the sole discretion of the Compensation Committee), which, in the case of options and SARs, will be deemed to be equal to the excess, if any, of the value of the consideration to be paid in the Change in Control transaction to holders of the same number of shares subject to such options or SARs (or, if no consideration is paid in any such transaction, the fair market value of the shares subject to such options or

 

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SARs) over the aggregate strike price; (iii) provide for the issuance of substitute awards that will substantially preserve the otherwise applicable terms of any affected awards previously granted under the Amended Plan as determined by the Compensation Committee in its sole discretion; (iv) terminate options without providing accelerated vesting or (v) take any other action with respect to awards that the Compensation Committee deems appropriate. The treatment of awards upon a Change in Control may vary among participants in the Compensation Committee’s sole discretion. With respect to existing awards under the Current Plan, performance awards will be settled upon a Change in Control as determined by the Compensation Committee in its sole discretion based upon the extent to which the performance goals for any such awards have been achieved after evaluating actual performance over the course of the performance cycle until the date of the Change in Control and the anticipated level of performance as of the date of the Change in Control.

Repricing

The terms of a stock option or SAR cannot be amended to lower the exercise price, and options and SARs may not be cancelled in exchange for cash, other awards or stock options and SARs with an exercise price lower than the exercise price of the cancelled stock options or SARs without, in each case, stockholder approval.

Recoupment and Clawback

All awards granted under the Amended Plan are subject to any compensation recovery policy, and all awards (and any proceeds) are subject to any clawback policy we may implement, including any policy implemented to comply with legal requirements such as the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).

Amendment and Termination

The Amended Plan may be amended or terminated by our Board of Directors at any time, but no amendment may be made without stockholder approval if it would increase the number of shares issued or available under the Amended Plan, materially expand benefits accruing to plan participants, reduce the minimum exercise price of an option or base price of an SAR granted under the Amended Plan, modify the eligibility criteria for participation in the Amended Plan, increase per-person limits or the number of shares which may be issued, delete or limit the prohibition against repricing or otherwise require approval by stockholders in order to comply with applicable law or the rules of a national stock exchange on which the shares subject to the Amended Plan are listed. Unless required to comply with applicable laws, no termination, suspension or amendment of the Amended Plan may adversely affect the rights of any participant with respect to a previously granted award without the participant’s written consent.

Transferability

Awards granted under the Amended Plan are generally nontransferable (other than by will or the laws of descent and distribution), except that the Committee may provide for the transferability of nonqualified stock options at the time of grant or thereafter to certain family members.

Effective Date and Term

If approved by stockholders at the Annual Meeting, the Amended Plan will be effective as of December 7, 2018. No award will be granted under the Amended Plan on or after September 24, 2023.

Certain U.S. Federal Income Tax Consequences

Federal Income Tax Consequences of Equity Incentive Plan Awards

The following is a brief summary of the principal U.S. federal income tax consequences of transactions under the Amended Plan, based on current U.S. federal income tax laws. This summary is not intended to be exhaustive,

 

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does not constitute tax advice and, among other things, does not describe state, local or foreign tax consequences, which may be substantially different.

Nonqualified Stock Options . Generally, a participant will not recognize taxable income on the grant or vesting of a nonqualified stock option. Upon the exercise of a nonqualified stock option, a participant will recognize ordinary income in an amount equal to the difference between the fair market value of our Class A common stock received on the date of exercise and the option cost (number of shares purchased multiplied by the exercise price per share).

Incentive Stock Options . No taxable income is recognized by a participant on the grant or vesting of an ISO. If a participant exercises an ISO in accordance with its terms and does not dispose of the shares acquired within two years after the date of the grant of the ISO or within one year after the date of exercise, the participant will not, upon exercise, recognize ordinary income or capital gain or loss; however, the excess of the fair market value over the exercise price of the shares acquired is an item of adjustment in computing alternative minimum tax of the participant. If a participant holds the shares acquired for at least one year from the exercise date and does not sell or otherwise dispose of the shares for at least two years from the grant date, the participant’s gain or loss upon a subsequent sale will be long-term capital gain or loss equal to the difference between the amount realized on the sale and the participant’s basis in the shares acquired.

If a participant sells or otherwise disposes of the shares acquired without satisfying the required minimum holding period, such “disqualifying disposition” will give rise to ordinary income equal to the excess of the fair market value of the shares acquired on the exercise date or, if less, the amount realized upon the disqualifying disposition over the participant’s tax basis in the shares acquired.

Stock Appreciation Rights . Generally, a participant will not recognize taxable income upon the grant or vesting of an SAR, but will recognize ordinary income upon the exercise of an SAR in an amount equal to the cash amount received upon exercise (if the SAR is cash-settled) or the difference between the fair market value of our Class A common stock received from the exercise of the SAR and the amount, if any, paid by the participant in connection with the exercise of the SAR. The participant will recognize ordinary income upon the exercise of an SAR regardless of whether the shares of our Class A common stock acquired upon the exercise of the SAR are subject to further restrictions on sale or transferability. The participant’s basis in the shares will be equal to the ordinary income attributable to the exercise. The participant’s holding period for shares acquired pursuant to the exercise of an SAR begins on the exercise date.

Restricted Shares . A participant generally will not be taxed at the time of a restricted stock award but will recognize taxable income when the award vests or otherwise is no longer subject to a substantial risk of forfeiture. The amount of taxable income will be the fair market value of the shares at the time of vesting. Participants may elect to be taxed at the time of grant by making an election under Section 83(b) of the Code within 30 days of the award date. If a restricted stock award subject to the Section 83(b) election is subsequently canceled, no deduction will be allowed for the amount previously recognized as income, and no tax previously paid will be refunded. Unless a participant makes a Section 83(b) election, dividends paid to a participant on shares of an unvested restricted stock award will be taxable to the participant as ordinary income in compensation for services. If the participant makes a Section 83(b) election, the dividends will be taxable to the participant as dividend income.

Restricted Stock Units and Performance Share Awards . A participant generally will not be subject to income tax at the time of grant or vesting of a restricted stock unit award or performance share award, but will recognize taxable income upon receiving stock under the award and cash that is attributable to dividend equivalents, if any. Restricted stock units and performance share awards are subject to Federal Insurance Contribution Act tax upon vesting. The amount of taxable income will be the fair market value of the shares at the time of issuance. No Section 83(b) election is available for restricted stock units or performance share awards.

 

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Other Equity-Based Awards . A participant will generally not recognize taxable income on a deferred stock award until shares subject to the award are distributed. A participant will recognize ordinary income in an amount equal to the fair market value of the shares of our Class A common stock on the date of distribution. Any dividend equivalents paid on unvested deferred stock awards are taxable as ordinary income when paid to the participant. A participant will generally recognize taxable income on the grant of unrestricted stock, in an amount equal to the fair market value of the shares on the grant date. Except as limited by Section 162(m) (as further discussed below), we will ordinarily be entitled to a deduction at the same time and in the same amounts as the ordinary income recognized by the participant.

Cash Awards . A participant will generally recognize taxable income upon the payment of a cash award, in an amount equal to the amount of the cash received. Except as limited by Section 162(m) (as further discussed below), we will ordinarily be entitled to a deduction at the same time and in the same amounts as the ordinary income recognized by the participant.

Withholding . To the extent required by law, we will withhold from any amount paid in settlement of an award such amounts of withholding and other taxes due or take other action as we deem advisable to enable ourselves to satisfy withholding and tax obligations related to any awards.

Deductions

We will ordinarily be entitled to a tax deduction equal to the amount recognized as ordinary income by a participant in the Amended Plan (including on the exercise of a stock option or SAR or on delivery pursuant to a restricted stock unit). In the case of restricted shares, unless a participant has made a Section 83(b) election, we will also be entitled to a deduction, for federal income tax purposes, for dividends paid on unvested restricted stock awards. We will also be entitled to a deduction, for federal income tax purposes, for cash dividend equivalent payments on restricted stock units.

Prior to the enactment of the TCJA, Section 162(m) generally limited to $1 million the federal tax deductibility of some forms of compensation paid in one year to the chief executive officer and the three other most highly compensated executive officers employed by the Company at the end of the year (other than the Company’s chief financial officer) and provided that “performance-based compensation” may qualify for an exception to the limit on deductibility, if, among other requirements, the plan under which such compensation is paid met certain requirements, including stockholder approval. The Current Plan was originally designed to permit awards that would comply with the performance-based compensation exception under Section 162(m). As a result of the TCJA, significant changes were made to Section 162(m), including expanding the number of individuals covered by Section 162(m) and eliminating the performance-based compensation exception, effective for taxable years beginning after December 31, 2017. However, the TCJA also includes transition relief, pursuant to which these changes to Section 162(m) will not apply to compensation payable under a written binding agreement that was in effect on November 2, 2017 that is not subsequently materially modified, and which compensation otherwise would have been deductible under Section 162(m) prior to the effective time of the Act. In August 2018, the Internal Revenue Service (“IRS”) issued initial guidance regarding its interpretation of the transition relief, and the Compensation Committee is considering the impact of this guidance with respect to awards granted on or before November 2, 2017.

New Plan Benefits; Future Plan Awards

The value, number of units and type of equity to be awarded in the future under the Amended Plan depend on a number of factors, including, but not limited to, our performance, our goals and objectives, individual performance and the discretion of the Committee. The benefits or amounts that will be received by or allocated to our executive officers or other eligible employees or non-employee directors cannot be determined at this time. Nevertheless, for illustrative purposes and not necessarily indicative of the equity that might be awarded under Amended Plan, the table below sets forth the awards that were granted under the Current Plan during the fiscal

 

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year ended June 30, 2018 to the current named executive officers, all executive officers as a group, all non-employee directors as a group and all other non-executive employees as a group:

 

     Performance
Shares

(at Target)
     RSUs      NQSOs  

Susan D. DeVore, Chief Executive Officer

     80,245        26,749        77,053  

Michael J. Alkire, Chief Operating Officer

     47,269        15,757        45,388  

Craig S. McKasson, Chief Financial Officer

     30,694        10,232        29,472  

Leigh T. Anderson, President of Performance Services (1)

     13,159        4,387        12,635  

Kelly E. Rakowski, former SVP of Premier Performance Partners (1)

     13,131        4,377        12,609  

Durral R. Gilbert, former President, Supply Chain Services (2)

     17,052        5,684        16,374  

Executive Officer Group ( 9 people)

     232,374        77,462        223,129  

Non-Employee Director Group (13 people) (3)

     —          48,529        —    

Non-Executive Officer Employee Group

     350,710        135,975        337,368  

 

(1)

Mr. Anderson was promoted to President of Performance Services, effective July 20, 2018 and served as our Chief Information Officer during fiscal year 2018. Ms. Rakowski resigned effective July 20, 2018.

(2)

Mr. Gilbert served as President, Supply Chain Services through October 31, 2017 and served in a transition role from November 1 through December 31, 2017.

(3)

Excludes two member-directors who do not receive equity compensation. Non-employee directors do not receive performance shares or stock options under our Director Compensation Policy

As of October 12, 2018, the closing price on the NASDAQ Global Select Market of our Class A common stock was $44.44 per share.

Equity Compensation Plan Information

We have granted equity awards to employees and directors under the Current Plan, which was approved most recently by our stockholders in December 2017. The following table sets forth certain information as of September 30, 2018 concerning the shares of Class A common stock authorized for issuance under the Current Plan. Certain information as of June 30, 2018 concerning the shares of Class A common stock authorized for issuance under the Current Plan as required by SEC disclosure is included in Part III, Item 12 of our 2018 Form 10-K. No shares of Class B common stock are authorized for issuance under the Current Plan or the Amended Plan, and we currently have no equity compensation plans under which shares may be issued that have not been approved by our stockholders.

 

Plan Category

   Number of securities
to be
issued upon exercise of
outstanding options,
warrants and rights
(a)
    Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
    Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
 

Equity compensation plans approved by security holders:

      

Amended and Restated Premier, Inc. 2013 Equity Incentive Plan

     5,424,344 (1)      $ 30.37 (2)        3,046,831 (3)   

Equity compensation plans not approved by security holders

     —         n/a       —    

Total

     5,424,344 (1)      $ 30.37 (2)        3,046,831 (3)   

 

(1)

Assumes RSUs, performance shares and stock option awards are paid at target level. Actual shares awarded may be higher or lower based upon actual performance over the measurement period. For more detailed information, see Note 16—Stock-Based Compensation to our Consolidated Financial Statements included in

 

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  our 2018 Form 10-K and similar note to our Consolidated Financial Statements included in our Form 10-Q for the quarter ended September 30, 2018, expected to be filed with the SEC in early November 2018.
(2)

This calculation reflects only outstanding stock option awards.

(3)

Reflects, as of September 30, 2018, shares reserved for future grants of stock options, restricted stock units, restricted stock awards, performance shares and/or other equity awards. Any shares withheld to satisfy tax withholding obligations or tendered to pay the exercise price of an option will again be available for grant under the terms of the Current Plan.

Board Recommendation

The Board of Directors unanimously recommends a vote “FOR” the approval of the Amended and Restated Premier, Inc. 2013 Equity Incentive Plan.

In accordance with the Board’s recommendation, the proxy holders will vote the shares of Class A common stock covered by valid and timely received proxies “FOR” the approval of the Amended and Restated Premier, Inc. 2013 Equity Incentive Plan. The Trustee will vote all of the Class B common stock as a block in the matter determined by the majority of the votes timely received by the Trustee.

 

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ITEM 4 – ADVISORY VOTE ON EXECUTIVE COMPENSATION

In accordance with the Dodd-Frank Act and related SEC rules, we request stockholders approve, on an advisory basis, our executive compensation program. We ask that you support the compensation of our named executive officers, or NEOs, as disclosed under the heading “Executive Compensation,” including the “Executive Summary” section, beginning on page 64, and the accompanying tables and related narrative disclosure. This proposal, commonly referred to as a “say-on-pay” proposal, gives stockholders the opportunity to express their views on the NEOs’ compensation as required under Section 14A of the Exchange Act. This vote is not intended to address any specific item of compensation, but rather the overall compensation of the NEOs and the philosophy, policies and practices described in this proxy statement.

Our executives—including our NEOs—are critical to our success. That is why we design our executive compensation program to attract, retain and motivate exceptional and diverse executive talent. We structure our executive compensation program to focus on stockholders’ interests by incentivizing superior sustainable long-term performance. We believe our executive compensation program strikes the appropriate balance between utilizing responsible, measured pay practices and effectively incentivizing our NEOs to dedicate themselves fully to value creation for our stockholders.

Under our executive compensation program, we align pay and performance by making a significant portion of our NEOs’ compensation contingent on:

 

   

achieving specific and challenging annual and long-term performance goals; and

 

   

increasing stockholder value.

As further described in our “Compensation Discussion & Analysis” section, we incorporate rigorous compensation-related design and governance practices to protect our stockholders’ interests, including the following:

 

   

we have strong stock ownership guidelines for our executive officers that promote alignment of their interests with those of our stockholders;

 

   

our long-term incentive plan is 100% equity-based;

 

   

85% of our CEO’s target total compensation is at-risk, incentive-based pay (67% of which is based on our long-term performance);

 

   

on average, 75% of our other NEOs’ target total compensation is at-risk, incentive-based pay (55% of which is based on long-term performance);

 

   

we do not pay tax gross-ups associated with benefits payable in connection with a change in control;

 

   

we mitigate risk by limiting incentive payments using multiple performance measures in our incentive plans and imposing a strong incentive compensation recoupment (clawback) policy; and

 

   

we prohibit hedging, pledging and short sales of our common stock.

We encourage you to read the “Compensation Discussion and Analysis” section beginning on page 63 of this proxy statement, which includes a recap of what we do and what we don’t do on page 66, and the “Executive Compensation Tables” beginning on page 84 of this proxy statement to better understand the details of our NEOs’ compensation for fiscal year 2018 and their opportunities to realize compensation in the future.

Our Compensation Committee and our Board believe that our executive compensation program for our NEOs serves our stockholders’ interests. The vote on this resolution, commonly known as a “say-on-pay” resolution, is not intended to address any specific element of compensation but rather the overall NEO compensation program as described in this proxy statement. Although this vote is advisory and not binding on us, the Board, and the

 

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Compensation Committee, which is responsible for developing and administering our executive compensation philosophy and program, will consider the results as part of its ongoing review of our executive compensation program.

The Board recommends that stockholders indicate their support for our compensation of our NEOs, and we ask you to vote “FOR” the following resolution at our Annual Meeting:

“RESOLVED, that Premier’s stockholders approve, on an advisory basis, the compensation paid to Premier’s named executive officers, as disclosed in this Proxy Statement for the 2018 Annual Meeting of Stockholders pursuant to the SEC’s compensation disclosure rules, including the Compensation Discussion and Analysis section, Summary Compensation Table for Fiscal Year 2018 and the other related tables and discussion.”

Board Recommendation

The Board of Directors unanimously recommends a vote “FOR” the approval of the compensation of our named executive officers, as disclosed in this proxy statement pursuant to the compensation disclosure rules of the SEC.

In accordance with the Board of Directors’ recommendation, the proxy holders will vote the shares of Class A common stock covered by valid and timely received proxies “ FOR ” the approval of the compensation of our named executive officers, as disclosed in this proxy statement pursuant to the compensation disclosure rules of the SEC, unless instructed otherwise. The Trustee will vote all of the Class B common stock as a block in the manner determined by the majority of the votes timely received by the Trustee.

 

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CORPORATE GOVERNANCE AND BOARD STRUCTURE

Corporate Governance

Our corporate governance practices are established, monitored and regularly assessed by our Board of Directors with assistance from the Nominating and Governance Committee. The Board of Directors considers current and proposed legal requirements and governance best practices in connection with its oversight of our corporate governance practices.

Corporate Governance Guidelines

To assist the Board of Directors in the exercise of its duties and responsibilities and to serve the best interests of us and our stockholders, the Board of Directors has adopted Corporate Governance Guidelines that set forth, among other things:

 

   

a governance matrix depicting the structure and committees of the Board.

 

   

the Board’s role in overseeing the management and conduct of our business, including:

 

   

the job description and specific functions of the Board and its committees;

 

   

Board membership criteria and core competencies required by members;

 

   

annual review and evaluation of the Chief Executive Officer led by the Chair of the Board in collaboration with the Compensation Committee;

 

   

annual senior management evaluation;

 

   

annual review and update, if appropriate, of the management succession plan;

 

   

risk management and oversight by the Audit and Compliance Committee; and

 

   

annual Board self-assessment to evaluate whether the Board is functioning effectively and meeting objectives and goals.

 

   

director qualifications and responsibilities, including:

 

   

individual director qualification standards and personal traits;

 

   

director nomination, selection and assessment;

 

   

director responsibilities to exercise common sense business judgment, exercise their fiduciary duties to all stockholders and exercise personal accountability through regular attendance and participation and investment of time and energy in our business;

 

   

commitment to support the needs of the Board and fully serve out the established board term;

 

   

limits on other board service;

 

   

director orientation and continuing education;

 

   

director mentorship program;

 

   

notice of changes in principal employment or changes in independence; and

 

   

director compensation and independent/outside director stock ownership.

 

   

Board independence, including:

 

   

director independence standards while we are a “controlled company” under NASDAQ rules and thereafter and required reviews of each director’s independence;

 

   

Board leadership and the annual election of a Board chair and vice chair that are not officers of ours;

 

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Board job descriptions;

 

   

the annual election of Company officers, including a president, chief executive officer and secretary; and

 

   

independence and other qualifications for Board committee members while we are a “controlled company” under NASDAQ rules and thereafter.

 

   

Board accountability, ethics and integrity, including:

 

   

adherence to the Board’s Conflict of Interest Policy;

 

   

adherence to our Code of Conduct and the Board Code of Ethics;

 

   

regularly held executive sessions outside the presence of management; and

 

   

Board access to and retention of independent advisors.

 

   

Board structure, including:

 

   

Board size and review of the same;

 

   

Board class structure and term of each class;

 

   

term limits; and

 

   

resignation and failure to be re-elected.

 

   

Board committees, including:

 

   

standing committees and committee structure;

 

   

assignment and rotation of committee members and committee chairs;

 

   

committee chair job description; and

 

   

committee meeting frequency, length and agenda.

 

   

Board meetings, agenda and information, including:

 

   

regular meeting schedules and attendance expectations;

 

   

Board agenda process;

 

   

Board information flow, materials and presentations;

 

   

director access to senior management;

 

   

right to call a special meeting of the Board and related procedures; and

   

annual stockholder meeting and attendance.

 

   

Board interaction/communications with stockholders, analysts, institutional investors, member owners and the media where appropriate.

 

   

Board responsiveness to stockholder proposals that receive substantial support.

Under its charter, the Nominating and Governance Committee, in consultation with the Chair of the Board and the Chief Executive Officer, periodically reviews, revises, interprets and confirms compliance with the Corporate Governance Guidelines.

Code of Ethics

We have adopted a Corporate Code of Conduct, as well as a Board Code of Ethics and a Board Conflict of Interest Policy and Disclosure Statement, together our “code of ethics,” that apply, as applicable, to all

 

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employees, directors and officers, including our principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions. The purpose of the code of ethics is to deter wrongdoing and promote:

 

   

honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

 

   

full, fair, accurate, timely and understandable disclosure in reports required to be filed with or submitted by us to the SEC and in other public communications;

 

   

compliance with all applicable rules and regulations that apply to us and our officers and directors;

 

   

the prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and

 

   

accountability for adherence to the code.

We will disclose any future amendments to, or waivers from, certain provisions of these ethical policies and standards for officers and directors on the “Investors” section of our website at http://investors.premierinc.com promptly following the date of such amendment or waiver. Upon written request to our Corporate Secretary, we will also provide a copy of the code of ethics free of charge.

Corporate Website

We maintain a “Corporate Governance” area within the “Investors” section of our website and an “Ethics and Compliance” area within the “About Premier” section of our website where you can find copies of our principal governance documents and ethics policies. You may also request copies of these documents by contacting our Corporate Secretary at 13034 Ballantyne Corporate Place, Charlotte, North Carolina, 28277, or by calling 1-704-816-4662. Our “Corporate Governance” and “Ethics and Compliance” areas of our website are located at http://investors.premierinc.com/corporate-governance/ and https://www.premierinc.com/about-premier/ethics-and-compliance/ , respectively, and include the following documents, among others:

 

   

Certificate of Incorporation;

 

   

Bylaws;

 

   

Corporate Governance Guidelines;

 

   

Whistleblower Policy;

 

   

Insider Trading Policy;

 

   

Corporate Code of Conduct;

 

   

Group Purchasing Code of Conduct;

 

   

Board Code of Ethics;

 

   

Board Conflict of Interest Policy and Disclosure Statement;

 

   

Audit and Compliance Committee Charter;

 

   

Nominating and Governance Committee Charter;

 

   

Finance Committee Charter;

 

   

Compensation Committee Charter;

 

   

Conflict Advisory Committee Charter; and

 

   

Member Agreement Review Committee Charter.

We encourage our stockholders to read our governance documents, as we believe they illustrate our commitment to good governance practices and ethical business conduct.

 

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Role of the Board in the Oversight of Risk

Our Board of Directors plays an active role in overseeing management of our risks. We have identified five primary areas of enterprise risk across our operations that are monitored and managed by our Board of Directors, management and internal auditors. These areas include risks associated with strategic, operational, financial, legal and information technology and systems, including cybersecurity. In conjunction with its management of these specific risk areas, our Board of Directors manages reputational risks across all of our operations. Our Board of Directors is primarily responsible for oversight of the strategic, operational and information technology and systems risks that we may encounter. The committees of our Board of Directors assist our full Board in risk oversight by addressing specific matters within the purview of each committee. Our Audit and Compliance Committee focuses on oversight of financial, legal and regulatory compliance, as well as ethical risks. The Audit and Compliance Committee oversees the cyber risk management program developed by our President of Performance Services (formerly serving as our Chief Information Officer) and designed to monitor, mitigate and respond to cyber risks, threats and incidents and reviews periodic reports from our President of Performance Services, including developments in cyber threat environment and cyber risk mitigation efforts. Our Finance Committee oversees financial risks related to capital allocation and financial forecasting. Our Compensation Committee, as discussed in more detail below, focuses on risks relating to executive compensation plans and arrangements, and our Nominating and Governance Committee focuses on reputational and corporate governance risks relating to our company including the independence of our Board of Directors.

While each committee is responsible for evaluating certain risks and overseeing the management of such risks, our full Board of Directors remains regularly informed regarding such risks through committee reports and otherwise. In addition, our Board and its committees receive regular reports from our Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, General Counsel, Chief Ethics and Compliance Officer and other members of senior management regarding areas of significant risk to us, including strategic, operational, financial, legal and regulatory, information technology and systems, cyber and reputational risks. We believe the leadership structure of our Board of Directors supports and promotes effective risk management and oversight.

The Compensation Committee reviews and considers our compensation policies and programs in light of the Board of Directors’ risk assessment and management responsibilities on an annual basis. Our human resources department in consultation with Mercer (US) Inc. (“Mercer”) prepared and presented to the Compensation Committee a risk assessment report that addressed the incentive compensation structure, plans and processes at all levels of our Company. The assessment included, among other things, a review of pay mix (fixed versus variable, cash versus equity and short-versus long-term), performance metrics, target setting, performance measurement practices, pay determination, mitigation practices such as our compensation recoupment policy, and overall governance and administration of pay programs. After reviewing this report and making inquiries of management, the Compensation Committee determined we have no compensation policies and programs that give rise to risks reasonably likely to have a material adverse effect on our company.

Communications to Directors

Stockholders and other parties interested in communicating directly to the Board of Directors, any committee or any non-employee director may do so by writing to the address listed below:

PREMIER, INC.

BOARD OF DIRECTORS

13034 BALLANTYNE CORPORATE PLACE

CHARLOTTE, NORTH CAROLINA 28277

ATTENTION: [Addressee*]

C/O ANNA-MARIE FORREST, CORPORATE SECRETARY

* Including the name of the specific addressee(s) will allow

us to direct the communication to the intended recipient.

 

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All communications received as set forth in this paragraph will be reviewed by the office of our General Counsel for the sole purpose of determining whether the contents represent a message to our directors. Any contents that are not in the nature of advertising, promotions of a product or service or patently offensive material will be forwarded promptly to the addressee. In the case of communications to the Board of Directors or any group or committee of directors, the General Counsel’s office will make sufficient copies of the contents to send to each director who is a member of the group or committee to which the envelope is addressed.

Board Structure and Director Nominations

Board Structure and Meetings

The Board’s overarching responsibility is to advise and oversee the management and conduct of our business by our Chief Executive Officer and other members of management charged with the health and overall success of Premier’s business. To that end, our business, property and affairs are managed under the direction of our Board of Directors. Our Board size may not exceed 18 directors, and our Board is currently comprised of 16 members, five of whom are independent under the standards discussed below, 10 of whom are member-directors as discussed below and one of whom is our Chief Executive Officer, Ms. DeVore. The Board is divided into three classes (Class I, Class II and Class III) with staggered terms of three years each. The term of one class expires at each annual meeting of stockholders; thus, directors typically stand for election after three years, unless they are filling an unexpired term. Under our Corporate Governance Guidelines, no director may serve for more than two full three-year consecutive terms except for (i) the Chief Executive Officer; (ii) each director who is not a director, officer, employee or agent of, or otherwise affiliated with, any stockholder of ours and (iii) a Director serving as Chair of the Board, whose term may be extended at the discretion of the Board.

Our Bylaws and Corporate Governance Guidelines provide that the Chair of the Board shall not be one of our officers. We believe that having a non-executive Chair of our Board creates an environment that is more conducive to objective evaluation and oversight of management’s performance, increasing management accountability and improving the ability of the Board of Directors to monitor whether management’s actions are in the best interests of us and our stockholders. Our Chief Executive Officer, Board Chair and Board Vice-Chair work together to set the Board agenda. Board members are invited to make agenda suggestions, and the Board approves the annual schedule of Board and committee items. The Board Chair presides over Board meetings, coordinates the work of the committees of our Board of Directors and performs other duties delegated to the Chair by our Board of Directors. Committee assignments and designation of the committee chair are made by the Board based upon recommendations of the Board Chair and Nominating and Governance Committee. Executive sessions of independent directors, held outside the presence of employee Board members and member-directors, are scheduled at each in-person Board meeting and may be called at any other Board or committee meeting. The Chair of the Audit and Compliance Committee presides over executive sessions.

The Board of Directors adopted the foregoing structure to promote decision-making and governance independent of that of our management and to better perform the Board’s monitoring and evaluation functions. Members of our Board of Directors are kept informed of our business through discussions with our Chief Executive Officer and other officers, by reviewing materials provided to them, by visiting our offices and by participating in meetings of the Board of Directors and its committees.

Under our Corporate Governance Guidelines, Board members are expected to prepare for and attend at least 75% of all Board and applicable committee meetings. The Board of Directors met nine times during fiscal year 2018. In addition, the independent directors met in executive session four times during fiscal year 2018. Except for Marvin O’Quinn, each incumbent member of the Board of Directors attended 75% or more of the meetings of the Board of Directors and of the committees on which he or she served that were held during the period for which he or she was a director or committee member, respectively. In addition, under our Corporate Governance Guidelines, directors are encouraged to attend each annual meeting of stockholders. All directors who were

 

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serving as directors at the time of our 2017 Annual Meeting of Stockholders held on December 1, 2017 attended such annual meeting. We expect all of our directors to attend the Annual Meeting.

Criteria for Board Members

Our Corporate Governance Guidelines provide criteria applicable to both the composition of the Board as a whole and individual directors. The Board as a whole has been designed to possess all of the following core competencies, with each director contributing knowledge, experience and skills in at least one of the following domains:

 

   

senior executive level leadership experience;

 

   

group purchasing, value-based purchasing, pharmacy management and supply chain operations;

 

   

healthcare transformation, healthcare continuum of care and population management;

 

   

performance improvement, clinical quality improvement, patient safety, outcomes management, risk management and healthcare measurement;

 

   

information technology, cybersecurity and knowledge management;

 

   

outsourcing services;

 

   

finance, audit and significant transactions/M&A/private equity/public equity;

 

   

national perspective on healthcare policy and advocacy;

 

   

healthcare insurance and payment systems; or

 

   

academic medical experience.

The Board has adopted a Board Competency and Succession Plan Policy as the guideline for the Nominating and Governance Committee in evaluating and nominating Board candidates. The Board recognizes that criteria change as the membership of the Board changes and considers the current make-up and requirements of the Board in its nomination process. To be considered for Board membership, individual directors should possess the following personal traits:

 

   

a strong strategic planning orientation, including the ability to view our goals and plans strategically;

 

   

ability to effectively oversee risk and innovation, thus safeguarding our mission and stockholder interests;

 

   

knowledge of effective governance policies and practices;

 

   

proven leadership skills as an executive in a successful organization;

 

   

ability to listen, engage, reflect and generally work effectively with other directors and management;

 

   

willingness to ask management and each other tough questions and challenge traditional thinking;

 

   

adeptness at managing change, ambiguity and complexity;

 

   

integrity backed by a record of ethical conduct;

 

   

understanding of the importance and implications of compliance with regulatory requirements;

 

   

interest and ability to serve in a Board leadership position (e.g., Board Chair, Vice-Chair, committee chair) in the future; and

 

   

ability to make a priority commitment to support the needs of the Board and to fully serve out the established Board term.

 

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With respect to member-directors, the Board Competency and Succession Plan Policy requires consideration of the following characteristics:

 

   

type of stockholder (e.g., member owner, group affiliate);

 

   

type of organization (e.g., health system, hospital, other);

 

   

organization’s size and scope of services;

 

   

organization’s primary markets (e.g., urban, suburban, rural, safety net);

 

   

geography;

 

   

level of engagement with us; and

 

   

candidate’s gender, ethnic background and age.

Board Diversity

Although there is no formal policy on diversity of nominees, both the Board of Directors and the Nominating and Governance Committee believe that diversity of skills, perspectives and experiences as represented on the Board as a whole, in addition to the primary factors, attributes or qualities discussed above, promote improved monitoring and evaluation of management on behalf of the stockholders and produce more creative thinking and solutions. The Nominating and Governance Committee considers, but does not base its choices solely on, the distinctive skills, perspectives and experiences that candidates diverse in gender, ethnic background, geographic origin and professional experience offer. In addition, under our Board Competency and Succession Plan Policy, the Board seeks to have a composition diverse in gender, ethnicity and age. Our Corporate Governance Guidelines do not explicitly provide limitations on Board service due to age.

Resignation Policy; Vacancies

Under our Corporate Governance Guidelines, our non-management directors must submit a letter of resignation upon resignation or retirement from, or termination of, the director’s principal current employment, or other similarly material changes in professional occupation or association. The Board is free to accept or reject the letter of resignation based on the best interests of the Board and stockholders and shall promptly notify such director of its decision.

A director appointed by the Board to fill a vacancy, including a vacancy created by a resignation, will serve until the next election of the class for which such director has been appointed and until his or her successor is elected and qualified, or until his or her earlier death, resignation, retirement, disqualification or removal.

Director Nomination Process

The Nominating and Governance Committee, in consultation with the Chair of the Board and the Chief Executive Officer, is responsible for identifying, considering, recommending, recruiting and selecting, or recommending that the Board select, candidates to fill open positions on the Board consistent with Board-approved criteria and qualifications for membership. It is the Board’s expectation that all Board members participate in Board recruitment efforts.

Internal Process for Identifying Candidates

The Board Competency and Succession Plan Policy is the guideline for the Nominating and Governance Committee in evaluating and nominating Board candidates. The Nominating and Governance Committee has two primary methods for identifying director nominees (other than those proposed by stockholders, as discussed

 

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below). First, on a periodic basis, the Committee solicits ideas for possible candidates from members of the Board of Directors, senior level executives and other individuals personally known to the members of the Board. Second, the Committee may from time to time use its authority under its charter to retain, at our expense, one or more search firms to identify candidates (and to approve such firms’ fees and other retention terms).

Proposals for Director Nominees by Stockholders

The Nominating and Governance Committee will consider written proposals from stockholders for director nominees that are timely and properly noticed. In considering candidates submitted by stockholders, the Nominating and Governance Committee will take into consideration the needs of the Board of Directors and the qualifications of the candidate. In accordance with Article I, Section 12 of our Bylaws, to be timely, stockholder notice must be delivered to or mailed and received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 20 days, or delayed by more than 70 days, from such anniversary, proposed nominee(s) and related notice, in order to be timely, must be received not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. The Nominating and Governance Committee received no nominee recommendations from stockholders for the Annual Meeting. Stockholder nominations for our 2019 annual meeting of stockholders must be received at our principal executive offices on or after August 9, 2019 and not later than September 8, 2019. A stockholder’s notice must be in the form set forth in Article I, Section 12 of our Bylaws and must be addressed to Premier, Inc., 13034 Ballantyne Corporate Place, Charlotte, North Carolina 28277, Attention: Corporate Secretary.

Article I, Section 12 of our Bylaws requires, among other things, that the notice must set forth:

(1) as to each person whom the stockholder proposes to nominate for election or re-election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder, including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected;

(2) the name and record address of the stockholder giving notice and the beneficial owner, if any, on whose behalf the nomination is being made;

(3) the class and number of shares of our stock which are owned beneficially and of record by such stockholder and such beneficial owner;

(4) a representation that the stockholder intends to appear in person or by proxy at the meeting to propose such nomination;

(5) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group which intends to (i) deliver a proxy statement and/or form of proxy to holders of at least the percentage of our outstanding capital stock required to elect the nominee and/or (ii) solicit proxies from stockholders in support of such nominee;

(6) any other information relating to such stockholder and beneficial owner, if any, required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for the election of directors in an election contest pursuant to and in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder;

(7) a description of any agreement, arrangement or understanding with respect to the nomination and/or the voting of shares of any class or series of our stock between or among the stockholder giving the notice, the

 

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beneficial owner, if any, on whose behalf the nomination is made, any of their respective affiliates or associates and/or any others acting in concert with any of the foregoing (collectively, “proponent persons”); and

(8) a description of any agreement, arrangement or understanding (including without limitation any contract to purchase or sell, acquisition or grant of any option, right or warrant to purchase or sell, swap or other instrument) the intent or effect of which may be (i) to transfer to or from any proponent person, in whole or in part, any of the economic consequences of ownership of any security of ours; (ii) to increase or decrease the voting power of any proponent person with respect to shares of any class or series of our stock and/or (iii) to provide any proponent person, directly or indirectly, with the opportunity to profit or share in any profit derived from, or to otherwise benefit economically from, any increase or decrease in the value of any security of ours.

A stockholder proposing a nominee for the annual meeting must update and supplement the notice required by Article I, Section 12 of our Bylaws so that the information in the notice is true and correct as of the record date for the annual meeting and as of the date that is 15 days prior to the annual meeting or any adjournment or postponement thereof; such update and supplement shall be delivered in writing to the Corporate Secretary at our principal executive offices not later than five days after the record date for the meeting (in the case of any update and supplement required to be made as of the record date), and not later than 10 days prior to the date for the meeting or any adjournment or postponement thereof (in the case of any update and supplement required to be made as of 15 days prior to the meeting or any adjournment or postponement thereof). We may require any proposed nominee to furnish such other information as may reasonably be required to determine the eligibility of such proposed nominee to serve as a director. Any stockholder that intends to submit a nominee should read the entirety of the requirements in our Bylaws, particularly Article I, Section 12, which can be found under the “Corporate Governance” area within the “Investors” section of our website at http://investors.premierinc.com/corporate-governance/ .

Evaluation of Candidates

The Nominating and Governance Committee will consider all candidates identified through the processes described above, and will evaluate each of them, including incumbents, based on the same criteria. The selection process involves rigorous vetting of both independent and non-independent director candidates by the Nominating and Governance Committee, the Chair of the Board and senior management to ensure the best qualified individuals are appointed to the Board. Ultimately, background and reference checks will be conducted, and the Committee will meet to finalize its list of recommended candidates for the Board’s consideration. The candidates recommended for the Board’s consideration will be those individuals who will create a Board of Directors that is strong in its collective knowledge of, and diverse in skills and experience with respect to, accounting and finance, management and leadership, vision and strategy, business operations, business judgment, crisis management, risk assessment, information technology and cybersecurity, industry knowledge, corporate governance and global markets.

Director Independence

Status as a “Controlled Company”

We are currently a “controlled company” under NASDAQ rules because our member owners, pursuant to the terms of the VTA, beneficially own more than 50% of the total voting power of our outstanding common stock. As a “controlled company,” we are not required by NASDAQ for continued listing of our Class A common stock to (i) have a majority of independent directors; (ii) maintain an independent compensation committee or (iii) maintain an independent nominating function. We intend to take advantage of all these exemptions from NASDAQ listing requirements for the foreseeable future. As discussed below, we do maintain an Audit and Compliance Committee comprised entirely of independent directors. Once we cease to qualify as a “controlled company,” and after any permitted phase-in period, the Board expects to have a majority of independent directors and independent committees as required by NASDAQ.

 

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Review of Director Independence and Standards for Independence

On August 8, 2018, the Board of Directors undertook its review of the independence of its directors and director nominees as independent directors based on our Corporate Governance Guidelines. Independent directors must meet the standards of independence established by NASDAQ. The Board reviews annually the independence of each director, taking into consideration the recommendations of the Nominating and Governance Committee. Directors have an affirmative obligation to inform the Board of any material changes in their circumstances or relationships that may impact their designation by the Board as independent.

The Board of Directors assessed whether any director had a relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of such director. In addition, the Board assessed whether any of the following relationships existed between us and the director or the director’s family members (i.e., spouse, parents, children and siblings or anyone residing in the director’s home) that would prohibit a finding of independence under NASDAQ rules:

 

   

at any time during the past three years was the director employed by us;

 

   

has the director or a family member of the director accepted any compensation from us in excess of $120,000 during any period of 12 consecutive months within the three years preceding the determination of independence, other than the following: (i) compensation for Board or Board committee service; (ii) compensation paid to a family member who is our employee (other than an executive officer) or (iii) benefits under a tax-qualified retirement plan, or non-discretionary compensation;

 

   

does the director have a family member who is, or at any time during the past three years was, employed by us as an executive officer;

 

   

is the director or his family member a partner in, or a controlling stockholder or an executive officer of, any organization to which we made, or from which we received, payments for property or services in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenues for that year, or $200,000, whichever is more, other than the following: (i) payments arising solely from investments in our securities or (ii) payments under non-discretionary charitable contribution matching programs;

 

   

is the director or his family member employed as an executive officer of another entity where at any time during the past three years any of our executive officers served on the compensation committee of such other entity; or

 

   

is the director or his family member a current partner of our outside auditor, or was a partner or employee of our outside auditor who worked on our audit at any time during any of the past three years.

In connection with this determination, on an annual basis, each director and executive officer is required to complete a questionnaire which requires disclosure of any transactions with us in which the director or executive officer, or any member of his or her immediate family, has a direct or indirect material interest. There were no such transactions indicated for fiscal year 2018.

In determining the independence of Ms. Wolf, who, until May 2016, was a member of the board of directors of Airgas, Inc., one of our contracted suppliers, our Board of Directors considered the relationship arising through the ordinary course of business between us and Airgas, Inc., but did not view the relationship as materially impacting its independence determination. Ms. Wolf did not have a direct or indirect material interest in such business relationship.

Determination of Director Independence

Based on its review, the Board of Directors affirmatively determined that each of Stephen R. D’Arcy, Jody R. Davids, David H. Langstaff, William E. Mayer and Ellen C. Wolf is an independent director in accordance with

 

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our Corporate Governance Guidelines. Each of Barclay E. Berdan, Eric J. Bieber, MD, William B. Downey, Peter S. Fine, Philip A. Incarnati, Marc D. Miller, Marvin R. O’Quinn, Scott Reiner, Terry D. Shaw and Richard J. Statuto is a member-director. Ms. DeVore, who is our Chief Executive Officer, was not deemed to be independent.

Each of our independent directors satisfies the definition of “independent director” contained in Rule 5605 of the NASDAQ listing standards. As a result of the review and determination above, the Board determined that:

 

   

each member of the Audit and Compliance Committee was an independent director under our Corporate Governance Guidelines and otherwise meets the qualifications for membership on such committee imposed by NASDAQ and other applicable laws and regulations; and

 

   

each member of the Audit and Compliance Committee had accounting or related financial management expertise and was financially literate, and otherwise meets the audit committee membership requirements imposed by NASDAQ, our Corporate Governance Guidelines and other applicable laws and regulations; and that Ms. Wolf qualifies as an “audit committee financial expert” within the meaning of SEC regulations.

In addition, there are no arrangements or understandings known to us between any of the directors nominated for election to the Board of Directors and any other person pursuant to which a director was or is to be elected as a director or nominee, other than any arrangements or understandings with our directors or officers acting solely in their capacities as such. None of our directors, nominees or executive officers is a party to any material proceedings adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries.

Committees of the Board of Directors

Committee Memberships and Meetings

The Board reviews and determines the membership of our Board committees at least annually, with input from the Nominating and Governance Committee. Our Board of Directors has the following five standing committees, each of which is governed by a charter and reports its actions and recommendations to the Board of Directors: Audit and Compliance Committee, Compensation Committee, Nominating and Governance Committee, Finance Committee and Member Agreement Review Committee.

 

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The following table shows the number of meetings held in fiscal year 2018 and the current membership of each of the five Board committees, and the Conflict Advisory Committee, which is overseen by the Audit and Compliance Committee.

 

     Audit and
Compliance

Committee(1)
   Compensation
Committee
   Nominating and
Governance
Committee
   Finance
Committee
   Member
Agreement
Review
Committee
   Conflict
Advisory
Committee(2)

Number of Meetings

   9    7    3    5    3    4

Existing Directors:

                 

Barclay E. Berdan

            X      

Eric J. Bieber, MD

         X         

Stephen R. D’Arcy

   X    X             X

Jody R. Davids

   X                X

Susan D. DeVore

               X   

William B. Downey

         X         

Peter S. Fine

            Chair      

Philip A. Incarnati

            X      

David H. Langstaff

   X             X    X

William E. Mayer

      Chair       X    Chair   

Marc D. Miller

      X            

Marvin R. O’Quinn

         X         

Scott Reiner

         X         

Terry D. Shaw

         Chair    X      

Richard J. Statuto

      X       X      

Ellen C. Wolf

   Chair       X       X    X

 

(1)

The Audit and Compliance Committee also oversees a Disclosure Committee that includes, among others, our General Counsel, Corporate Controller and Chief Ethics and Compliance Officer.

(2)

The Conflict Advisory Committee is chaired by our Chief Ethics and Compliance Officer and includes the directors identified above, as well as our General Counsel.

Board Committee Charters

As discussed in more detail in the descriptions of each of our Board committees below, each of our Board committees operates under a written charter adopted by the Board. The charters set forth the purpose, objectives and responsibilities of the respective committee and discuss matters such as committee membership requirements, number of meetings and the setting of meeting agendas. The charters are assessed periodically by the Nominating and Governance Committee and the respective committee and are updated by the Board as needed. The Board committee charters are available under the “Corporate Governance” area within the “Investors” section of our website at http://investors.premierinc.com/corporate-governance/ . You may also request copies by contacting our Corporate Secretary at 13034 Ballantyne Corporate Place, Charlotte, North Carolina, 28277, or by calling 1-704-816-4662.

Audit and Compliance Committee

Our Audit and Compliance Committee is intended to meet the requirements of a separately designated standing audit committee as defined under Section 3(a)(58)(A) of the Exchange Act. The Audit and Compliance Committee must consist of at least three members of the Board, with each member satisfying the independence requirements for directors and audit committee members under NASDAQ rules and Rule 10A-3 of the Exchange

 

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Act. Each member of the Audit and Compliance Committee must be financially literate, and at least one member of the Audit and Compliance Committee must have past employment experience in finance or accounting, requisite professional certification in accounting or other comparable experience or background demonstrating financial management experience, as each such qualification is interpreted by the Board in its business judgment. In addition, to the extent practicable, at least one member of the Audit and Compliance Committee shall be an “audit committee financial expert” as such term is defined by the SEC.

The specific responsibilities of the Audit and Compliance Committee set forth under its charter are, among others, to:

 

   

review and discuss with management and the independent auditors the annual audited and quarterly financial statements and other related disclosure prior to filing our annual report on Form 10-K and quarterly reports on Form 10-Q, including our disclosures under Management’s Discussion and Analysis of Financial Condition and Results of Operations;

 

   

review any significant issues regarding, or proposed changes to, our auditing and accounting principles and practices identified by the independent auditors, the internal auditors or management;

 

   

review financial and business risk exposures and the steps management has undertaken to monitor and control such exposures, including our procedures and any related policies with respect to risk assessment and risk management;

 

   

have responsibility for the appointment, compensation, retention, termination (when appropriate) and oversight of the work of the independent auditors and the internal auditors;

 

   

pre-approve all audit and permitted non-audit related services (including the fees and terms thereof) to be performed for us by our independent auditors, subject to the de minimis exception set forth in Section 10A(i)(1)(B) of the Exchange Act;

 

   

at least annually, review a report by our independent auditors regarding their internal quality control procedures, material issues raised by certain reviews, inquiries or investigations relating to independent audits within the last five years and relationships between the independent auditors and us;

 

   

consider at least annually the independence of the independent auditors, discussing with the independent auditors, if necessary, relationships identified in the auditors’ report, review the experience and qualifications of the lead partner each year and determine that all partner rotation requirements are executed;

 

   

discuss with management and the independent auditors, as appropriate, our earnings press releases and corporate policies with respect to the type and presentation of information to be included in earnings releases (paying particular attention to any use of “pro forma” or “adjusted” non-GAAP (as defined below) financial information) and our financial information and earnings guidance provided to investors, analysts and rating agencies;

 

   

receive reports from the independent auditors and management regarding, and review the adequacy and effectiveness of, our internal controls, including any significant deficiencies or material weaknesses in internal controls and significant changes in such controls reported to the committee by the independent auditors, the internal auditor or management, and any special audit steps adopted in light of material deficiencies; receive reports from management regarding, and review the adequacy and effectiveness of, our disclosure controls and procedures, including our policies and procedures to assess, monitor and manage business risk and other legal and ethical compliance programs;

 

   

receive and review reports from the independent auditors on: (i) our critical accounting policies and practices; (ii) material alternative treatments of financial information within generally accepted accounting principles (“GAAP”) that have been discussed with our management, including the ramifications of the use of such alternative treatments and the disclosures or treatments preferred by the independent auditors and (iii) other material written communications between the independent auditors and management;

 

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establish procedures for the receipt, retention and treatment of complaints received by our directors, officers and employees regarding illicit or illegal business practices and conduct and establish a process for investigation and proper resolution of any issues so raised;

 

   

review and approve, in accordance with our Code of Conduct, all “related party transactions” requiring disclosure under SEC Regulation S-K, Item 404 (primarily through the oversight of and collaboration with the Conflict Advisory Committee discussed below);

 

   

review with our General Counsel and independent auditors (i) legal matters that may have a material impact on our financial statements; (ii) any fraud involving our management or other employees who have a significant role in our internal controls; (iii) compliance policies and (iv) material reports or inquiries received from regulators or governmental agencies that raise material issues regarding our financial statements and accounting or compliance policies; and

 

   

advise the Board with respect to our policies and procedures for compliance with applicable laws and regulations, as well as general oversight of our corporate ethics and compliance policies.

The Audit and Compliance Committee has established a whistleblower policy to (i) facilitate reporting in good faith any complaint of inappropriate conduct and participation in the investigation of such complaint, (ii) encourage proper individual conduct, (iii) alert the Audit and Compliance Committee of potential issues before such inappropriate conduct has serious adverse consequences and (iv) instill protections for bringing such inappropriate conduct to our Company’s attention.

For additional information on the Audit and Compliance Committee’s role and its oversight of the independent auditors during fiscal year 2018, see “Report of the Audit and Compliance Committee.”

In connection with its duties, the Audit and Compliance Committee reviews and evaluates, at least annually, the performance of the committee and its members, may obtain the advice and assistance of outside advisors, including consultants and legal and accounting advisors, and performs all acts reasonably necessary to fulfill its responsibilities and achieve its objectives.

Compensation Committee

We have a separately standing Compensation Committee which has a charter requiring no fewer than three members, at least two of whom must be “outside directors” within the meaning of Section 162(m) and “nonemployee directors” within the meaning of SEC Rule 16b-3 under the Exchange Act. As a “controlled company” under NASDAQ listing rules, we are not required to maintain a compensation committee comprised entirely of independent directors. Nevertheless, the Compensation Committee is composed solely of independent directors and member-directors. There are no employee-directors on the Compensation Committee. The Compensation Committee’s purpose and objectives are to discharge the Board’s responsibilities related to the compensation of our and our subsidiaries’ executive officers. The committee has overall responsibility for approving and evaluating all of our and our subsidiaries’ compensation plans, policies and programs as applicable to the executive officers.

The specific responsibilities of the Compensation Committee are, among others, to:

 

   

at least annually, review and approve the annual base salaries and annual incentive opportunities of the executive officers; and periodically and as and when appropriate, review and approve the following items as they affect the executive officers: (i) all other incentive awards and opportunities, including both cash-based and equity-based awards and opportunities; (ii) any employment agreements and severance arrangements; (iii) any change in control agreements and change in control provisions affecting any elements of compensation and benefits; and (iv) any special or supplemental compensation and benefits for the executive officers and individuals who formerly served as executive officers, including supplemental retirement benefits and perquisites provided to them during and after employment;

 

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make recommendations to the Board with respect to the structure of overall incentive and equity-based plans and adopt, amend or terminate plans consistent with the approved structure;

 

   

take all permitted actions to administer and interpret our equity compensation plans and other long-term compensation plans and programs covering executive officers;

 

   

review, approve and oversee all equity award granting practices, and the stock ownership guidelines for senior management and directors and monitor compliance with such guidelines;

 

   

review and recommend to the Board the compensation of the non-management directors;

 

   

review and discuss with management the Compensation Discussion and Analysis and related disclosures as may be required by the rules and regulations of the SEC;

 

   

determine annually whether any conflicts of interest exist on the part of any executive compensation consultants retained by the Committee, and if so, ensure disclosure of such conflicts, including the nature of the conflict and how it was addressed, in our proxy statement;

 

   

evaluate the outcome of the advisory vote of the stockholders regarding “say-on-pay” and make recommendations or take appropriate actions in response to such advisory vote;

 

   

in conjunction with the Board, oversee the management development and succession planning process (including succession planning for emergencies) for the Chief Executive Officer and the Chief Executive Officer’s direct reports;

 

   

monitor our compliance with the requirements under the Sarbanes-Oxley Act of 2002 relating to loans to directors and officers, and with all other applicable laws affecting employee compensation and benefits; and

 

   

delegate authority to one or more subcommittees as it deems appropriate to carry out its responsibilities.

In connection with its duties, the Compensation Committee reviews and evaluates, at least annually, the performance of the Committee and its members, may obtain the advice and assistance of outside advisors, including consultants and legal and accounting advisors, and performs all acts reasonably necessary to fulfill its responsibilities and achieve its objectives. The Compensation Committee has the sole authority to set the compensation for, and to terminate the services of, its advisors. As discussed in further detail below under “Compensation Committee Report—Executive Compensation—Role of the Compensation Consultant,” the Compensation Committee directly engaged Mercer, a wholly-owned subsidiary of Marsh & McLennan Companies, Inc. (“MMC”), to provide advice and recommendations to the Compensation Committee on the amount and form of executive officer and Board of Director compensation. The Compensation Committee has reviewed the services that Mercer provides to the Compensation Committee and otherwise to us and our management, as well as the services that each individual employee of Mercer provides to us. Based on this review, the Compensation Committee has determined Mercer has no conflict of interest in providing advisory services to us.

Nominating and Governance Committee

We have a separately standing Nominating and Governance Committee. The Nominating and Governance Committee must be comprised of three or more directors as determined by the Board, in accordance with all applicable rules, regulations and stock exchange requirements. As a “controlled company” under NASDAQ listing rules, we are not required to maintain a nominating and governance committee comprised entirely of independent directors. The Nominating and Governance Committee is composed solely of independent directors and member-directors. There are no employee-directors on the Nominating and Governance Committee. The purpose of the Nominating and Governance Committee is to (i) assist the Board by identifying and nominating individuals qualified to become directors, consistent with criteria approved by the Board; (ii) take a leadership

 

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role in shaping the corporate governance of the Company; (iii) oversee the evaluation of the Board and management and (iv) recommend to the Board director nominees for each of the Board’s committees. The Nominating and Governance Committee has authority to retain and terminate search firms used to identify director candidates and to approve any such search firm’s fees and other retention terms.

The specific responsibilities of the Nominating and Governance Committee are, among others, to:

 

   

recommend the criteria and qualifications for membership on the Board;

 

   

identify, consider, recommend, recruit and select, or recommend that the Board select, candidates to fill open positions on the Board, including nominees recommended by stockholders;

 

   

develop and periodically evaluate policies with regard to the consideration of director candidates recommended by stockholders;

 

   

establish a process for identifying and evaluating nominees for director;

 

   

conduct appropriate inquiries into the backgrounds and qualifications of possible candidates;

 

   

recommend director nominees for approval by the stockholders;

 

   

recommend director nominees for each of the Board’s committees;

 

   

review and recommend proposed changes to our Certificate of Incorporation and Bylaws;

 

   

oversee the Board committee charters and policies;

 

   

periodically review, revise, interpret and confirm compliance with the Corporate Governance Guidelines;

 

   

establish and maintain an ongoing succession planning process for directors, Board leaders and Board committee members;

 

   

recommend ways to enhance services to, and improve communications and relations with, stockholders;

 

   

oversee periodic self-evaluations by the Board of its performance;

 

   

evaluate the size, needs and effectiveness of the Board;

 

   

recommend improvements to our corporate governance;

 

   

oversee the Board orientation process for new directors and the development by the Chief Executive Officer of programs for continuing education for all directors;

 

   

monitor the functions of the various committees of the Board and conduct periodic reviews of their contributions;

 

   

conduct director self- and peer-assessments on a regular basis/interval and regularly review each independent director’s continuation on the Board through this process;

 

   

establish criteria for an annual performance evaluation of the Committee by the Board; and

 

   

participate in evaluating the performance of the Chief Executive Officer.

In connection with its duties, the Nominating and Governance Committee reviews and evaluates, at least annually, the performance of the Committee and its members, may obtain the advice and assistance of outside advisors, including consultants and legal and accounting advisors, and performs all acts reasonably necessary to fulfill its responsibilities and achieve its objectives.

Finance Committee

We have a separately standing Finance Committee. The Finance Committee must be comprised of at least three directors. The Finance Committee is composed solely of independent directors and member-directors. There are

 

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no employee-directors on the Finance Committee. The purpose of the Finance Committee is to assist the Board in its oversight of our financial condition, strategies and capital structure.

The specific responsibilities of the Finance Committee are, among others, to:

 

   

provide oversight of our financial affairs, including: (i) reviewing the financial condition of us and our subsidiaries and (ii) reviewing, advising and making recommendations to the Board regarding proposed operating budgets for us and our subsidiaries;

 

   

review our financial policies as they relate to the Committee’s responsibilities;

 

   

review and recommend annual limits for expenditures and borrowings;

 

   

review, recommend and monitor significant mergers, acquisitions, divestitures, joint ventures, minority investments and other debt and equity investments;

 

   

review and recommend to the Board management’s recommendations to the Committee for significant capital expenditures, including for real estate, facilities and information technology;

 

   

review management’s plans and objectives for our capitalization, including (i) the structure and amount of equity and debt desired to meet our financing needs; (ii) anticipated sources and uses of cash and (iii) our target credit rating;

 

   

review and make recommendations to the Board regarding management’s recommendations to the Committee with respect to (i) new offerings of equity and debt securities, stock splits, credit agreements, including material changes thereto, and our investment policies; (ii) dividends declared by us and distributions by Premier LP; (iii) any authorization for repurchases of our stock and (iv) our Corporate Cash Investment Policy;

 

   

review management’s decisions regarding certain financial aspects of our employee benefit plans, including costs and benefits of maintaining or changing certain plan features and the financial impact on us and plan participants of the performance of plan investments and plan contribution types and levels, but not including selecting or changing plan investments or any other duty that might be considered “fiduciary” in nature within the meaning of the Employment Retirement Income Security Act of 1974 (ERISA);

 

   

review our tax risks and other tax matters;

 

   

review with management our strategies for managing significant financial risks and contingent liabilities including the use of hedges, derivative instruments, insurance coverage and related costs and other similar risk management techniques; and

 

   

carry out such other activities within the scope of its primary purpose or as the Board may from time to time delegate to it.

The Finance Committee also reviews and evaluates, at least annually, the performance of the Committee and its members. In connection with its duties, the Finance Committee may obtain the advice and assistance of outside advisors, including consultants and legal and accounting advisors, and perform all acts reasonably necessary to fulfill its responsibilities and achieve its objectives.

Member Agreement Review Committee

We have a separately standing Member Agreement Review Committee. The Member Agreement Review Committee must be comprised of at least three directors and the Chief Executive Officer. The Member Agreement Review Committee is currently composed of three independent directors and the Chief Executive Officer. The purpose of the Member Agreement Review Committee is to review and provide feedback to the Company’s management with respect to non-ordinary course transactions between Premier or a subsidiary and its

 

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members, particularly entering into member agreements that provide for “savings guarantees” or “fees at risk.” “Savings guarantee” means an arrangement in which we or our subsidiary contractually provides to identify and/or implement a specific amount of savings for a customer and will pay cash for any shortfall. “Fees at risk” means a consulting arrangement in which the Company contractually provides to identify and/or implement a certain amount of savings and will have its consulting fees reduced on a proportionate basis or will continue to provide consulting resources at no charge to the customer in the event that such savings are not achieved (until such savings are achieved).

The specific responsibilities of the Member Agreement Review Committee are, among others, to:

 

   

assess risks in connection with agreements entered into with members;

 

   

review the status of risk-based agreements on a periodic basis;

 

   

review and address the outcome of significant risk-based proposals; and

 

   

together with the full Board, approve any increase to the aggregate permitted level of risk for management to enter into an agreement that would cause the then-current permitted level of risk to be exceeded.

The Member Agreement Review Committee also reviews and evaluates, at least annually, the performance of the Committee and its members. In connection with its duties, the Member Agreement Review Committee may obtain the advice and assistance of outside advisors, including consultants and legal and accounting advisors, and perform all acts reasonably necessary to fulfill its responsibilities and achieve its objectives.

Conflict Advisory Committee

The Audit and Compliance Committee of the Board of Directors maintains a Conflict Advisory Committee. The Conflict Advisory Committee must be comprised of our General Counsel, our Chief Ethics and Compliance Officer and at least three independent directors. The Conflict Advisory Committee is currently comprised of four independent directors, our General Counsel and our Chief Ethics and Compliance Officer, who chairs the Committee. The purpose of the Conflict Advisory Committee is to provide advice and recommendations to the Audit and Compliance Committee such that each of our directors and officers can exercise the powers and duties thereof in the best interests of us and our stockholders and not to further the interests of such director or officer or the interests of another person (including a family member) or entity, including any limited partner of Premier LP or any member organization related thereto or affiliated therewith. The Conflict Advisory Committee is an advisory committee, and its members serve in a non-fiduciary capacity and have no independent authority to act on our behalf.

The specific responsibilities of the Conflict Advisory Committee are, among others, to:

 

   

investigate, review and evaluate any potential “conflict of interest” (as defined below);

 

   

determine the facts and circumstances regarding any such conflict of interest or potential conflict of interest referred to it by the Audit and Compliance Committee and recommend to the Audit and Compliance Committee what action, if any, should be taken with respect to the matter;

 

   

regularly review and assess the effectiveness of the Board Conflict of Interest Policy and recommend any changes to the Audit and Compliance Committee for approval;

 

   

carry out any other duties delegated by the Audit and Compliance Committee that relate to potential conflicts of interest; and

 

   

perform any other activities consistent with its charter and applicable law as the Conflict Advisory Committee deems necessary or appropriate.

 

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As used in the Conflict Advisory Committee charter, the term “conflicts of interest” refers to (i) any matter that the Board believes may involve a conflict of interest between Premier, Inc. or any of its affiliates, on the one hand, and any of our officers or directors or their affiliates, on the other hand, and (ii) any material Related Party transaction (as such term is defined in the Board Conflict of Interest Policy), including transactions between us or any of our affiliates, on the one hand, and any of our officers or directors or their affiliates, on the other hand.

The Conflict Advisory Committee conducts an annual performance evaluation of itself, including an evaluation of compliance with its charter, pursuant to the Board self-assessment process. The Conflict Advisory Committee annually reviews and reassesses the adequacy of its charter and recommends any proposed changes to the Audit and Compliance Committee for approval. The Conflict Advisory Committee may request any of our officers or employees or our outside counsel to attend its meetings or to meet with any members of, or consultants to, the Conflict Advisory Committee.

COMPENSATION OF DIRECTORS

Director Compensation Policy

In 2013, the Board approved a Director Compensation Policy to provide an incentive to attract and retain the services of qualified persons to serve as directors. The policy applies to each director who is not an employee of, or compensated consultant to, us or any of our affiliates (“non-employee director”). The policy is designed to achieve the following key objectives:

 

   

align the interests of the non-employee directors and stockholders;

 

   

support overall organizational objectives and encourage the creation of stockholder value;

 

   

attract and retain high quality talent;

 

   

reflect the broad spectrum of talent and diverse sources of market data;

 

   

target median competitive pay levels; and

 

   

be simple to understand and administer.

In August 2016, upon the recommendation of the Compensation Committee, based on market analysis of director compensation generally, peer group analysis of director compensation and discussions with the Compensation Committee’s independent compensation consultant, the Board amended the Director Compensation Policy, effective January 1, 2017.

The Compensation Committee and the Board reviews the policy from time to time to assess whether any adjustments to the type and amount of director compensation should be made in order to fulfill the objectives of the policy. Only the Board may amend this policy.

On December 1, 2017, our stockholders approved an amendment to our 2013 Equity Incentive Plan that increased the director compensation limit under our 2013 Equity Incentive Plan. As amended, annual cash fees (including cash retainers and meeting fees) and equity compensation that may be earned during a calendar year cannot exceed $500,000.

 

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The following table sets forth the compensation elements and levels for non-employee directors and reflects the compensation for the enhanced responsibilities and time commitment associated with the positions.

 

Director Compensation Elements

   Amount  

Annual Board Cash Retainer

   $ 80,000  

Annual Equity or Cash Award (1)

   $ 125,000/$100,000  

Ad Hoc Meeting Fee (per meeting)

   $ 1,000  

Committee Meeting Fee (per meeting)

   $ 1,500  

Additional Audit and Compliance Committee Chair Retainer

   $ 15,000  

Additional Compensation Committee Chair Retainer

   $ 15,000  

Additional Nominating and Governance Committee Chair Retainer

   $ 7,500  

Additional Member Agreement Review Committee Chair Retainer

   $ 7,500  

Additional Finance Committee Chair Retainer

   $ 7,500  

Short-term Ad Hoc Committee Chair Retainer

   $ 5,000  

Additional Board Chair Annual Cash Retainer

   $ 60,000  

 

(1)

Each non-employee director will receive an annual equity award of restricted stock units valued at $125,000, with the exception of any director whose employer prohibits the receipt by such individual of equity-based awards from Premier. Non-employee directors prohibited from receiving equity-based compensation will receive an annual cash award of $100,000 in lieu of the annual equity award.

Components of Director Compensation

Cash Retainer and Fees— The amounts in the “Fees Earned or Paid in Cash” column under the Fiscal Year 2018 Director Compensation Table below are retainers and meeting fees earned for serving on our Board, its committees and as committee chairs and Chair of the Board during fiscal year 2018. All annual retainers are paid quarterly. Each outside director receives his or her cash compensation after first being elected or appointed to the Board on a pro-rated basis for the number of days during which he or she provides service. If an outside director dies, resigns or is removed during any quarter, he or she shall be entitled to a cash payment on a pro-rated basis through his or her last day of service.

Equity or Cash Awards— On January 25, 2018, each non-employee director then serving on the Board received an award of restricted stock units (RSUs) with a grant date fair value, computed in accordance with Accounting Standards Codification 718, Compensation – Stock Compensation, of $125,018, with the exception of any non-employee director whose employer prohibits the receipt by such individual of equity-based awards from Premier. If a director provides a written certification stating that he or she is prohibited by his or her employer from receiving equity-based compensation from Premier, then such director will receive an annual cash award of $100,000 in lieu of the annual equity award. With respect to equity grants, grant date fair value assumptions are consistent with those disclosed in Note 16—Stock-Based Compensation to our Consolidated Financial Statements in our 2018 Form 10-K. In fiscal year 2018, each non-employee director, except Barclay E. Berdan and Terry D. Shaw, was awarded 3,733 RSUs, with a grant date fair market value of $33.49 per share based on the closing price of our Class A common stock on the award date, January 25, 2018. Each of Barclay E. Berdan and Terry D. Shaw received a cash award of $100,000. Each annual equity award, and each annual cash award granted in lieu of the annual equity award, will vest one full year after the grant date. Directors who begin their service mid-year will receive a pro-rated equity or cash award, as applicable.

Expense Reimbursement— Each non-employee director will be reimbursed for his or her reasonable out-of-pocket business expenses incurred in connection with attending meetings of the Board and its committees or in connection with other business related to the Board. Each non-employee director will also be reimbursed for his or her reasonable out-of-pocket business expenses authorized by the Board or one of its committees that are incurred in connection with attendance at meetings with our management.

 

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All Other Compensation— Each director is entitled annually to direct an amount of $1,000 to his or her selected not-for-profit organization during the holiday season in lieu of receipt of a holiday gift. No compensation or benefits other than those described above are payable to any directors for Board service.

Director Education Policy

We believe that we and our stockholders are best served by a Board of Directors comprised of individuals who are well versed in modern principles and “best practices” of corporate governance and other subject matters relevant to board service, including matters related to the healthcare industry, and who thoroughly comprehend the role and responsibilities of board membership. Under our Director Education Policy, we provide both internal and external educational opportunities and association memberships for our directors. To encourage continuing director education, we reimburse directors up to $7,500 annually for attending U.S.-based director education programs under this policy. Amounts reimbursed include all reasonable costs associated with attending each program, including travel, lodging and meals. Directors serving on multiple boards are encouraged to obtain pro rata reimbursement of their director education expenses from each company that they serve, but we will nonetheless reimburse 100% of the costs if this is not practicable.

Director Stock Ownership Guidelines

Our stock ownership guidelines require our non-employee directors to hold our Class A common stock equal in value to at least three times the annual cash retainer. The non-employee directors are expected to meet the stock ownership guideline level within five years after receipt of their first equity-based award for service to the Board and to continuously own sufficient shares to satisfy the guideline level once attained for as long they remain a member of the Board. If a director provides us with a written certification stating that he or she is prohibited by his or her employer from receiving equity-based compensation from Premier, then such director will not receive equity-based awards from us and, accordingly, will not be subject to the stock ownership guidelines.

Fiscal Year 2018 Director Compensation Table

Compensation in the table below reflects amounts earned in fiscal year 2018 by our non-employee directors serving on our Board for all or a portion of fiscal year 2018. Ms. DeVore, the only director who is also an employee, receives no additional compensation for serving on the Board.

 

Name

   Fees Earned or
Paid in Cash ($)(1)
     Stock Awards
($)(2)
     Cash Awards
Under Director
Compensation Policy
($)(3)
     All other
Compensation ($)(4)
     Total  

Barclay E. Berdan

   $ 88,500      $ 0      $ 100,000      $ 1,000      $ 189,500  

Eric J. Bieber, MD

   $ 85,500      $ 125,018      $ 0      $ 1,000      $ 211,518  

Stephen R. D’Arcy

   $ 109,500      $ 125,018      $ 0      $ 1,000      $ 235,518  

Jody R. Davids

   $ 100,500      $ 125,018      $ 0      $ 1,000      $ 226,518  

William B. Downey

   $ 85,500      $ 125,018      $ 0      $ 1,000      $ 211,518  

Peter S. Fine

   $ 96,000      $ 125,018      $ 0      $ 1,000      $ 222,018  

Philip A. Incarnati

   $ 87,500      $ 125,018      $ 0      $ 1,000      $ 213,518  

David H. Langstaff

   $ 103,500      $ 125,018      $ 0      $ 1,000      $ 229,518  

William E. Mayer

   $ 129,500      $ 125,018      $ 0      $ 1,000      $ 255,518  

Marc D. Miller

   $ 90,000      $ 125,018      $ 0      $ 1,000      $ 216,018  

Marvin R. O’Quinn

   $ 84,000      $ 125,018      $ 0      $ 1,000      $ 210,018  

Scott Reiner

   $ 85,500      $ 125,018      $ 0      $ 1,000      $ 211,518  

Terry D. Shaw

   $ 104,000      $ 0      $ 100,000      $ 1,000      $ 205,000  

Richard J. Statuto

   $ 164,500      $ 125,018      $ 0      $ 1,000      $ 290,518  

Ellen C. Wolf

   $ 123,000      $ 125,018      $ 0      $ 1,000      $ 249,018  

 

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(1)

The amounts reflected in this column are the retainers or meeting fees earned for service as a director for fiscal year 2018, regardless of when such fees are paid.

(2)

Each non-employee director, except Messrs. Berdan and Shaw, received an annual award of restricted stock units (RSUs) with a grant date fair value, computed in accordance with Accounting Standards Codification 718, Compensation—Stock Compensation , of $125,018. Grant date fair value assumptions are consistent with those disclosed in Note 16—Stock-Based Compensation to our Consolidated Financial Statements in our 2018 Form 10-K. RSU grants fully vest on the first anniversary of the grant date. A total of 48,529 unvested RSUs granted to non-employee directors were outstanding as of June 30, 2018.

(3)

Cash awards are made pursuant to the Director Compensation Policy and are not made under 2013 Equity Incentive Plan. Each of Messrs. Berdan and Shaw provided a written certification stating that he was prohibited by his employer from receiving equity-based compensation from Premier and accordingly, each received an annual cash award of $100,000 in lieu of the annual equity award. See note 2 above.

(4)

The Director Compensation Policy, effective January 1, 2017, provides for a $1,000 contribution to be made to the charity of choice for each member of the Board of Directors. Contributions are generally made annually in December.

Indemnification and Exculpation

We indemnify our directors and officers to the fullest extent permitted by Delaware law. Our Certificate of Incorporation also includes provisions that eliminate the personal liability of our directors for monetary damages for breach of fiduciary duty as a director, except for liability:

 

   

for any breach of the director’s duty of loyalty to us or our stockholders;

 

   

for acts or omissions not in good faith or that involved intentional misconduct or a knowing violation of law;

 

   

under Section 174 of the Delaware General Corporation Law (regarding unlawful payment of dividends); or

 

   

for any transaction from which the director derives an improper personal benefit.

We have entered and expect to continue to enter into agreements to indemnify our officers and directors. With certain exceptions, these agreements provide for indemnification of expenses and liabilities incurred by the indemnified individual in connection with a proceeding related to his or her service to us as an officer or director (including, among other things, attorneys’ fees, judgments, fines, ERISA excise taxes and penalties and settlement amounts).

We believe these provisions and agreements are necessary to attract and retain qualified people who will be free from undue concern about personal liability in connection with their service to us.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following tables set forth information, as of the Record Date, regarding the beneficial ownership of shares of our Class A common stock and our Class B common stock by (i) each person known to us to beneficially own more than 5% of any class of the outstanding voting securities of Premier, (ii) each of our directors, director nominees and Named Executive Officers listed in the Summary Compensation Table for Fiscal Year 2018 and (iii) all of our directors, director nominees and executive officers as a group. In preparing the following table, we relied upon statements filed with the SEC by the beneficial owners of more than 5% of our outstanding shares of common stock pursuant to Sections 13 or 16 of the Exchange Act. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of Class A common stock and Class B common stock reflected as beneficially owned.

Beneficial ownership is determined in accordance with the rules of the SEC. Accordingly, the following table accounts for shares of Class A common stock issuable (i) upon the exercise of currently exercisable stock options and stock options that vest within 60 days of the Record Date and (ii) upon the vesting of performance shares or restricted stock units that vest within 60 days of the Record Date. Unless otherwise indicated in a footnote, the business address of each person listed below is the address of our principal executive office, Premier, Inc., 13034 Ballantyne Corporate Place, Charlotte, NC 28277.

 

Name

   Class A Common Stock
Beneficially Owned(1)
    Class B Common Stock
Beneficially Owned(1)
    Combined
Voting Power(1)(2)(3)
 
     Shares     % of Class(2)     Shares      % of Class(2)        

Certain Beneficial Owners

           

Vanguard Group Inc.(4)

     4,876,460       9.0     —          —         3.7

FMR LLC(5)

     4,515,766       8.4     —          —         3.4

JP Morgan Chase & Co.(6)

     4,097,059       7.6     —          —         3.1

Massachusetts Financial Services Co.(7)

     2,797,781       5.2     —          —         2.1

Premier Trust(3)

     —                 79,409,403        100     59.6

GNYHA Purchasing Alliance, LLC(3)(8)

     —                 6,820,461        8.6     5.1

Adventist Health System Sunbelt Healthcare Corporation(3)(9)

     —                 4,116,582        5.2     3.1

Directors, Director Nominees and Named Executive Officers:

           

Barclay E. Berdan (10)

     —                 1,908,703        2.4     1.4

Eric J. Bieber, MD(8)(10)

     3,967       *       549,824        *       *  

Stephen R. D’Arcy

     7,500       *       —                *  

Jody R. Davids

     10,150       *       —                *  

Susan D. DeVore

     1,511,763 (9)(11)      2.8     —                  1.1

William B. Downey(10)

     4,367       *       330,000        *       *  

Peter S. Fine(10)

     3,967       *       2,631,748        3.3     2.0

Philip A. Incarnati(10)

     3,967       *       986,905        1.2     *  

David H. Langstaff

     5,237       *       —                  *  

William E. Mayer

     10,854       *       —                *  

Marc D. Miller(10)

     3,967       *       2,232,680        2.8     1.7

Marvin R. O’Quinn(10)

     3,967       *       3,702,592        4.7     2.8

Scott Reiner(10)

     3,967       *       3,160,984        4.0     2.4

Terry D. Shaw(9)(10)

     —                 4,166,582        5.2     3.1

Richard J. Statuto(10)

     3,967       *       2,008,455        2.5     1.5

Ellen C. Wolf

     13,455       *       —                *  

Michael J. Alkire

     758,679 (12)      1.4     —                *  

Craig S. McKasson

     331,810 (13)      *       —                *  

Leigh T. Anderson

     38,227 (14)      *       —                *  

Directors, Director Nominees and Executive Officers as a group (22 persons)(15)

     2,812,514 (15)      5.2     21,628,473        27.2     18.3

 

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*

Represents less than 1%.

(1)

In connection with our reorganization and IPO, the member owners were issued Class B common units in Premier LP and an equivalent number of shares of Premier, Inc. Class B common stock. Subject to the terms of the Exchange Agreement, each member owner has the cumulative right, subject to certain restrictions, commencing on October 31, 2014, and during each year thereafter, to exchange up to one-seventh of its initial allocation of Premier LP Class B common units, as well as any additional Premier LP Class B common units purchased by such member owner pursuant to certain rights of first refusal set forth in the Exchange Agreement, on a quarterly basis, for shares of Premier, Inc. Class A common stock (on a one-for-one basis), cash or a combination of both, the form of consideration to be at the discretion of the Audit and Compliance Committee of our Board of Directors. For each Premier LP Class B common unit that is exchanged pursuant to the Exchange Agreement, the member owner will also surrender one corresponding share of Premier Class B common stock, which will automatically be retired. As of the Record Date, there were 79,409,403 Class B common units outstanding. On October 31, 2018, the next quarterly exchange date under the Exchange Agreement, 48,973,436 Class B common units of Premier LP will be eligible for exchange under the Exchange Agreement. Based on indicated participation in the October 31, 2018 Class B common unit exchange process, as of the October 15, 2018, a maximum of 9,833,739 Class B common units will be exchanged for shares of Class A common stock, cash or a combination thereof, as determined by our Audit and Compliance Committee. Correspondingly, we expect an equal number of shares of Class B common stock to be removed from the Class B Voting Trust and retired. Following the completion of the exchange process, assuming we settled the exchange solely with shares of Class A common stock, we expect the Class B common stock to represent approximately 52.2% of our total outstanding shares of Class A common stock and Class B common stock combined. Assuming we settled the exchange solely with cash, we expect the Class B common stock to represent approximately 56.3% of our total outstanding shares of Class A common stock and Class B common stock combined. See “Frequently Asked Questions—What is the Class B Common Unit Exchange Process? Will it impact the Annual Meeting?” above for additional information regarding the timing and impact of exchange process, the Record Date and the cancellation of Class B common stock. On or about October 31, 2018, we expect to file with the SEC a Current Report on Form 8-K regarding the final results of the October 31, 2018 exchange process.

(2)

Combined Voting Power represents the percentage of voting power of the Class A common stock and Class B common stock of Premier voting together as though a single class. These percentages account for the (i) exercise of currently exercisable stock options and stock options that vest within 60 days of the Record Date; and (ii) number of RSUs and performance shares that are expected to vest within 60 days of the Record Date. The percentages are based on 53,925,158 shares of Class A common stock outstanding and 79,409,403 shares of Class B common stock outstanding as of the Record Date.

(3)

Our member owners, including GNYHA Purchasing Alliance, LLC (“GNYHA PA”) and Adventist Health System Sunbelt Healthcare Corporation (“AHS”), are the beneficial owners of our Class B common stock. In connection with our reorganization and IPO, our member owners entered into the VTA pursuant to which the member owners contributed their Class B common stock to the Class B Voting Trust, under which a trustee will act on behalf of the member owners for purposes of voting their Class B common stock. As a result of the VTA, the Trustee has voting power over the member owners’ Class B common stock; however, the member owners retain investment power over the Class B common stock. The business address of Wells Fargo Delaware Trust Company, N.A., the Trustee, is 919 N. Market Street, Suite 1600, Wilmington, Delaware 19801. Following the expected Class B common unit exchanges discussed in footnote 1 above, the shares of Class B common stock surrendered in connection with such exchanges will no longer be included in the Class B Voting Trust.

(4)

The information presented is based solely on the Schedule 13F-HR filed with the SEC by Vanguard Group, Inc. (“Vanguard”) on August 14, 2018, with respect to holdings at June 30, 2018. The Schedule 13F-HR indicates sole investment discretion with respect to 4,848,382 shares, defined investment discretion with respect to 28,078 shares, sole voting authority with respect to 27,682 shares, shared voting authority with respect to 7,101 shares and no voting authority with respect to 4,841,677 shares. The address of Vanguard is P.O. Box 2600, V26, Valley Forge, PA 19482.

(5)

The information presented is based solely on a Schedule 13G/A filed with the SEC by FMR LLC (“FMR”) on September 10, 2018. According to such filing, FMR had sole voting power over 162,977 shares of common stock and sole dispositive power over 4,515,766 shares of common stock. The address of FMR is 245 Summer Street, Boston, MA 02210.

(6)

The information presented is based solely on the Schedule 13F-HR filed with the SEC by JPMorgan Chase & Co. (“JPM”) on August 14, 2018, with respect to holdings at June 30, 2018. The Schedule 13F-HR indicates defined investment discretion with respect to 4,097,059 shares, sole voting authority with respect to 3,681,066 shares and no voting authority with respect to 415,993 shares. The address of JPM is 270 Park Avenue, New York, NY 10017.

(7)

The information presented is based solely on the Schedule 13F-HR filed with the SEC by Massachusetts Financial Services Co. (“MFS”) on July 30, 2018, with respect to holdings at June 30, 2018. The Schedule 13F-HR indicates sole investment discretion with respect to 2,782,554 shares, defined investment discretion with respect to 15,227 shares, sole voting authority with respect to 2,767,930 shares, shared voting authority with respect to 15,277 shares and no voting authority with respect to 14,624 shares. The address of MFS is 111 Huntington Avenue, Boston, MA 02199.

(8)

All of the shares are held directly by GNYHA PA, whose manager is GNYHA Holdings, LLC. GNYHA PA has shared voting and dispositive power over the shares with GNYHA Holdings, LLC, Acurity, Inc., Greater New York Hospital Association, Inc. and certain hospitals. The principal business address of each entity named herein is c/o GNYHA Ventures Inc., 555 West 57th Street, Suite 1500, New York, NY 10019. Pursuant to the Exchange Agreement, on or about October 31, 2018, GNYHA PA has informed us that it expects to exchange 2,633,848 Class B common units of Premier, LP for shares of Class A common stock, cash or a combination thereof, as determined by our Audit and Compliance Committee, and correspondingly, we expect 2,633,848 shares of Class B common stock to be removed from the Class B Voting Trust and retired. Shares of Class A common stock received by GNYHA PA under the Exchange Agreement, if any, will not have a right to vote at the Annual Meeting because they will be issued after the Record Date. Eric J. Bieber, MD, a member of our Board of Directors, serves on the board of governors of Greater New York Hospital Association, Inc., but does not participate in investment or voting decisions regarding Class A common stock of Premier or Class B common units of Premier LP beneficially owned by GNYHA PA or its affiliated entities and disclaims beneficial ownership of such shares and units. Shares beneficially owned by GNYHA PA are not included in Dr. Bieber’s beneficial ownership amounts.

 

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(9)

All of the shares are held directly by AHS. The principal business address of AHS is 900 Hope Way, Altamonte Springs, FL 32714-1502. Pursuant to the Exchange Agreement, on or about October 31, 2018, AHS has informed us that it expects to exchange 200,000 Class B common units of Premier, LP for shares of Class A common stock, cash or a combination thereof, as determined by our Audit and Compliance Committee, and correspondingly, we expect 200,000 shares of Class B common stock to be removed from the Class B Voting Trust and retired. All Class B units being exchanged by AHS were purchased in prior exchanges from other limited partners pursuant to a right of first refusal under the Exchange Agreement. Shares of Class A common stock received by AHS under the Exchange Agreement, if any, will not have a right to vote at the Annual Meeting because they will be issued after the Record Date. Ms. DeVore, our President and Chief Executive Officer, and one of our directors, serves as a non-voting member of the audit and finance committees of the board of directors of AHS, but does not participate in investment or voting decisions regarding Class A common stock of Premier or Class B common units of Premier LP beneficially owned by AHS and disclaims beneficial ownership of such shares and units. Shares beneficially owned by AHS are not included in Ms. Devore’s beneficial ownership amounts. Terry D. Shaw, the Chief Executive Officer of AHS, is one of our board members.

(10)

As an executive officer of a member owner, such person may be deemed to share beneficial ownership of the shares and/or units held by the member owner with which he or she is affiliated, and such person disclaims beneficial ownership of any such shares or units or any other shares or units held by affiliates of the applicable member owner.

(11 )

Ms. DeVore is our President and Chief Executive Officer. Includes 351,553 shares of Class A common stock owned by Ms. DeVore and 1,160,210 shares of Class A common stock that are issuable upon the exercise of currently exercisable options. Shares beneficially owned by AHS are not included in Ms. DeVore’s beneficial ownership amounts. See note 9 above.

(12)

Mr. Alkire is our Chief Operating Officer. Includes 170,533 shares of Class A common stock owned by Mr. Alkire and 588,146 shares of Class A common stock that are issuable upon the exercise of currently exercisable options .

(13)

Mr. McKasson is our Senior Vice President and Chief Financial Officer. Includes 59,240 shares of Class A common stock owned by Mr. McKasson and 272,570 shares of Class A common stock that are issuable upon the exercise of currently exercisable options.

(14)

Mr. Anderson is our President of Performance Services. Includes 3,475 shares of Class A common stock owned by Mr. Anderson and 34,752 shares of Class A common stock that are issuable upon the exercise of currently exercisable options.

(15)

Includes the individuals identified in the table above and those additional individuals serving as executive officers as of the Record Date, as indicated under the heading “Executive Officers” below. Includes 679,528 shares of Class A common stock and 2,132,986 shares of Class A common stock that are issuable upon the exercise of currently exercisable options. Table excludes ownership of Kelly Rakowski and Durral Gilbert whose employment terminated on July 20, 2018 and December 31, 2017, respectively, and whose ownership of our Class A common stock is unknown as of the Record Date.

 

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC. Executive officers, directors and greater than 10% beneficial owners are required by the Exchange Act to furnish us with copies of all Section 16(a) forms they file. As an administrative matter, we assist our executive officers and directors by monitoring transactions and filing Section 16 reports on their behalf. Based on our records, compliance program and review of written representations, we believe that during fiscal year 2018 our executive officers, directors and greater than 10% beneficial owners complied with all applicable Section 16(a) filing requirements.

 

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RELATED PERSON TRANSACTIONS

Policy on Oversight of Related Person Transactions

We have several written policies and codes in place that govern, among other things, related party transactions and potential conflicts of interest. In addition, several of the committees of our Board of Directors have oversight responsibility for related party transactions and potential conflicts of interest. Transactions between us and our directors, executive officers and significant stockholders must be approved by our Audit and Compliance Committee, which is comprised of independent members of our Board of Directors, following consultation with the Conflict Advisory Committee. Pursuant to its charter, the Audit and Compliance Committee is responsible for the review and approval, in accordance with our Code of Conduct, of all related party transactions requiring disclosure under SEC Regulation S-K Item 404 (i.e., those in excess of $120,000). This obligation is executed primarily through oversight of and collaboration with the Conflict Advisory Committee. The Conflict Advisory Committee charter authorizes that Committee to oversee all business or personal transactions between officers or directors or their respective affiliates, on the one hand, and us or our affiliates, on the other hand. Additionally, the Conflict Advisory Committee was established in light of our controlled company status, the fact that we have member-directors on our Board of Directors and the need to establish governance around our member owners’ health system business development plans as well as our objective to collaborate on potential new business with our member owners. The Conflict Advisory Committee may recommend actions ranging from disclosure to recusal or resignation to the Audit and Compliance Committee for their consideration and action. In addition, the Member Agreement Review Committee is responsible for reviewing and providing feedback to our management with respect to non-ordinary course transactions between us or our subsidiaries and our member owners and also for assessing risks associated with agreements that we enter into with our member owners.

The above committees are permitted to engage outside advisors and other professionals to assist them with their stated duties, including evaluating and approving any transaction between us and any related party, including our member owners.

For more information regarding the evaluation of related party transactions and potential conflicts of interest, see “Corporate Governance and Board Structure—Corporate Governance—Code of Ethics,” “—Committees of the Board of Directors—Audit and Compliance Committee,” “—Member Agreement Review Committee” and “—Conflict Advisory Committee” above.

Related Person Transactions in Fiscal Years 2018 and 2017

GNYHA

As of June 30, 2018, GNYHA Purchasing Alliance, LLC and its member organizations (“GNYHA PA”) owned approximately 8% of the outstanding (i) partnership interests in Premier LP and (ii) Class B common stock of Premier, Inc. We had a limited partners’ distribution payable to GNYHA PA and its member organizations at June 30, 2018 and 2017 of $1.6 million and $2.7 million, respectively. During the fiscal years ended June 30, 2018 and 2017, we made payments to GNYHA PA of $3.6 million and $2.6 million, respectively, under our tax receivable agreement. Net administrative fees revenue based on purchases by Acurity, Inc. (“Acurity”) (an affiliate of GNYHA PA) and its member organizations was $71.5 million and $69.9 million for the fiscal years ended June 30, 2018 and 2017, respectively. Approximately $8.2 million and $7.8 million of our revenue share obligations related to revenue share obligations to Acurity and its member organizations at June 30, 2018 and 2017, respectively. Services and support revenue earned from Acurity and its member organizations was $13.7 million and $14.2 million during the fiscal years ended June 30, 2018 and 2017, respectively. Product revenue earned from, or attributable to services provided to, Acurity and its member organizations was $29.4 million and $17.2 million during the fiscal years ended June 30, 2018 and 2017, respectively. We also had receivables from Acurity and its member organizations of $3.9 million and $5.4 million at June 30, 2018 and 2017, respectively.

 

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Eric Bieber, MD., one of our directors, is a member of the board of governors of the Greater New York Hospital Association, Inc., an affiliate of GNYHA PA.

Adventist Health System Sunbelt Healthcare Corporation

As of June 30, 2018, AHS owned approximately 5% of the outstanding (i) partnership interests in Premier LP and (ii) Class B common stock of Premier, Inc. We had a limited partners’ distribution payable to AHS at June 30, 2018 and 2017 of $0.9 million and $1.4 million, respectively. During each of the fiscal years ended June 30, 2018 and 2017, we made payments to AHS of $0.3 million under our tax receivable agreement. Net administrative fees revenue based on purchases by AHS and its member organizations was $19.0 million and $18.2 million for the fiscal years ended June 30, 2018 and 2017, respectively. Approximately $2.2 million and $2.1 million of our revenue share obligations related to revenue share obligations to AHS and its member organizations at June 30, 2018 and 2017, respectively. Services and support revenue earned from AHS and its member organizations was $5.6 million and $4.9 million during the fiscal years ended June 30, 2018 and 2017, respectively. Product revenue earned from, or attributable to services provided to, AHS and its member organizations was $12.1 million and $10.0 million during the fiscal years ended June 30, 2018 and 2017, respectively. We also had receivables from AHS and its member organizations of $4.5 million and $1.2 million at June 30, 2018 and 2017, respectively.

Ms. DeVore, our President and Chief Executive Officer, and one of our directors, serves as a non-voting member of the audit and finance committees of the board of directors of AHS. Terry D. Shaw, one of our directors, is the Chief Executive Officer of AHS.

FFF Enterprises

On July 26, 2016, through our consolidated subsidiary, Premier Supply Chain Improvement, Inc., we acquired 49% of the issued and outstanding stock of FFF Enterprises, Inc. (“FFF”). Our share of FFF’s net income was $6.3 million and $4.4 million for the years ended June 30, 2018 and 2017, respectively. We maintain group purchasing agreements with FFF and receive administrative fees for purchases made by our members pursuant to those agreements. Net administrative fees revenue recorded from purchases under those agreements was $7.6 million and $4.8 million for the fiscal years ended June 30, 2018 and 2017.

AEIX

We conduct all operational activities for American Excess Insurance Exchange Risk Retention Group (“AEIX”), a reciprocal risk retention group that provides excess and umbrella healthcare professional and general liability insurance to certain hospital and healthcare system members. We are reimbursed by AEIX for actual costs, plus an annual incentive management fee not to exceed $0.5 million per calendar year. We received cost reimbursement of $6.0 million and $5.1 million for the fiscal years ended June 30, 2018 and 2017, respectively, and annual incentive management fees of $0.3 million and $0.2 million for the fiscal years ended June 30, 2018 and 2017, respectively. As of June 30, 2018 and 2017, we had $0.9 million and $0.6 million, respectively, in amounts receivable from AEIX.

Barclay Berdan, one of our directors, is chair of the AEIX board of directors.

Certain Contractual Arrangements with Our Member Owners

In connection with our reorganization and IPO, we entered into several agreements to define and regulate the governance and control relationships among us, Premier LP and the member owners, including GNYHA PA and AHS. While our member owners receive certain rights and benefits under these agreements, we do not believe that these rights and benefits represent a direct or indirect material interest to any of our member-directors or nominee member-directors that are employed by one of our stockholder hospitals or health systems or by a group

 

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affiliate or other non-provider organization affiliated with one or more Premier member facilities participating in our group purchasing program. These agreements, each of which became effective on October 1, 2013, include the:

 

   

Premier LP Amended and Restated Limited Partnership Agreement, as amended;

 

   

Exchange Agreement;

 

   

Registration Rights Agreement;

 

   

Tax Receivable Agreements;

 

   

Voting Trust Agreement; and

 

   

GPO Participation Agreements.

These agreements are summarized in Note 1—Organization and Basis of Presentation to our consolidated financial statements included in, and filed as exhibits to, our 2018 Form 10-K. The summary of these agreements does not purport to be complete, and is subject to, and qualified in its entirety by reference to, the complete text of the agreements.

 

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EXECUTIVE COMPENSATION

Introduction

Our Compensation Discussion and Analysis (“CD&A”) discusses our executive compensation program and explains the Compensation Committee’s decisions affecting NEO compensation for fiscal year 2018. Detailed compensation information is provided in tabular format as contemplated by the applicable SEC rules, with related narrative disclosure.

Our NEOs for fiscal year 2018 include the following current and departed officers:

 

Name

  

Title

Susan D. DeVore

  

President and Chief Executive Officer

Michael J. Alkire

  

Chief Operating Officer

Craig S. McKasson

  

Senior Vice President, Chief Financial Officer

Leigh T. Anderson

  

President, Performance Services

Kelly E. Rakowski (1)

  

Senior Vice President, Premier Performance Partners (through July 20, 2018)

Durral R. Gilbert (1)

  

President, Supply Chain Services (through October 31, 2017)

 

(1)

Ms. Rakowski served as Senior Vice President, Premier Performance Partners through her resignation effective July 20, 2018. Mr. Gilbert served as President, Supply Chain Services through October 31, 2017 and was employed in a transition role from November 1 through December 31, 2017.

Additional information regarding the NEOs’ biographical and business backgrounds is set forth above under “Item 1—Election of Directors” for Ms. DeVore, and below under “Executive Officers” for the other current NEOs.

COMPENSATION DISCUSSION AND ANALYSIS

In the Executive Summary section of our CD&A, we discuss:

 

   

The linkage of our executive compensation program to our Mission, Vision and Values

 

   

Our 2017 say-on-pay stockholder advisory vote

 

   

Key changes to our fiscal year 2018 executive compensation program

 

   

Highlights of our fiscal year 2018 performance

In the remainder of our CD&A, we describe:

 

   

How our executive compensation principles and governance practices align with our stockholders’ interests, i.e., what we do and what we don’t do

 

   

The design and rationale of our executive compensation program

 

   

The individual elements of our NEOs’ compensation program

 

   

Compensation paid to our NEOs in fiscal year 2018

 

   

Our recoupment (“clawback”), trading restrictions and anti-hedging, anti-pledging and compensation deductibility policies

 

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EXECUTIVE SUMMARY

Linking Executive Compensation to Our Mission, Vision and Values

We are confident that our executive compensation program provides a sound linkage between our Mission, Vision and Values and our stockholders’ interests, and we encourage a thorough review of our CD&A and other information in this “Executive Compensation” section of this proxy statement to ensure a better understanding of our program and this linkage.

Our Mission is to improve the health of communities.

Our Vision is through the collaborative power of the Premier alliance, we will lead the transformation to high-quality, cost-effective healthcare.

Our Values are integrity, passion for performance, innovation and a focus on people.

From serving our members, to improving healthcare in our communities, to investing in our people, our Mission, Vision and Values are at the heart of everything we do at Premier. Within this context, we design all of our compensation programs, including the structure of our executive compensation program, to accomplish the following:

 

   

Hire exceptionally talented people who are passionate about our Mission and Vision and exemplify our Values;

 

   

Drive sustained performance of our people to achieve challenging short- and long-term financial and operational goals that increase stockholder value; and

 

   

Retain the strongest and most diverse talent who are critical to the achievement of our Mission and realization of our Vision.

Our 2017 Stockholder Say-on-Pay Vote

At our 2017 Annual Meeting of Stockholders, we sought stockholder approval, on an advisory basis, of the compensation of our NEOs as disclosed in our 2017 proxy statement (“say-on-pay” vote). We hold our say-on-pay vote annually. In 2017, approximately 99.4% of the say-on-pay votes cast were votes “FOR” our executive compensation program. As evidenced by this strong backing, we believe our stockholders generally support our compensation principles, programs and governance practices. Our Compensation Committee and Board of Directors considered the 2017 advisory say-on-pay vote results, as well as comments from our stockholders, and decided not to change the overall structure of our executive compensation program.

 

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Highlights of Our 2018 Performance

Our fiscal year 2018 performance was strong, both financially and operationally, and exceeded our fiscal year 2017 performance on key financial metrics used, in part, in determining fiscal year 2018 NEO compensation. Set forth below is a comparison of our total Net Revenue, Non-GAAP Adjusted earnings before interest, taxes, depreciation, and amortization (“Adjusted EBITDA”) and Non-GAAP Adjusted Fully Distributed Earnings per Share (“Adjusted EPS”) for fiscal years 2017 and 2018:

 

 

LOGOClick to enlarge

 

(1)

Represents Total Net Revenue calculated in accordance with GAAP as reported in our 2018 Form 10-K.

(2)

Non-GAAP Adjusted EBITDA is defined as EBITDA before merger and acquisition related expenses and non-recurring, non-cash or non-operating items and including equity in net income (loss) of unconsolidated affiliates. EBITDA is defined as net income before interest and investment income, net, income tax expense, depreciation and amortization and amortization of purchased intangible assets. Non-recurring items include income or expenses and other items that have not been earned or incurred within the prior two years and are not expected to recur within the next two years. Such items include certain strategic and financial restructuring expenses. Non-operating items include gain or loss on disposal of assets and interest and investment income or expense.

(3)

We define Non-GAAP Adjusted Fully Distributed Earnings per Share, or Adjusted EPS, as Non-GAAP Adjusted Fully Distributed Net Income divided by diluted weighted average shares. We define Non-GAAP Adjusted Fully Distributed Net Income as net income attributable to Premier (i) excluding income tax expense, (ii) excluding the impact of adjustment of redeemable limited partners’ capital to redemption amount, (iii) excluding the effect of non-recurring and non-cash items, (iv) assuming the exchange of all the Class B common units for shares of Class A common stock, which results in the elimination of non-controlling interest in Premier LP and (v) reflecting an adjustment for income tax expense on Non-GAAP Fully Distributed Net Income before income taxes at our estimated effective income tax rate. Reflects income tax expense at an estimated effective income tax rate of 32% of Non-GAAP adjusted fully distributed income before income taxes for fiscal year 2018.

We use Non-GAAP financial metrics in our executive compensation program to more fairly evaluate our performance on a year-over-year basis by removing certain items outside the control of our management team. We note that Adjusted EBITDA and Adjusted EPS may have limitations as analytical tools, and should not be considered in isolation from, or as an alternative to, any measure of our performance derived in accordance with GAAP. Definitions of Adjusted EBITDA and Adjusted EPS and our rationale for using these performance metrics are further discussed below—see “Annual Incentive Plan and Equity Plan Metric Definitions.” Also see Appendix B to this proxy statement or our 2018 Form 10-K for additional information on our use of Non-GAAP financial metrics as well as a reconciliation to comparable GAAP measures.

 

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OUR EXECUTIVE COMPENSATION PRINCIPLES AND GOVERNANCE PRACTICES

Our executive compensation principles and governance practices are designed to promote and protect our stockholders’ interests. The table below outlines the foundational principles used in the design of our executive compensation program and the practices that govern the program.

 

Our Compensation Practices

What We Do

  

What We Don’t Do

   Put pay at-risk based on short- and long-term company performance. Three-fourths of our NEO compensation is at-risk (assuming target-level performance).   

×  Incentivize short-term results at the expense of long-term performance.

 

×  Allow margining, derivative or speculative transactions, such as hedges, pledges and short sales by our NEOs.

 

×  Provide tax gross up payments.

 

×  Re-price “under water” outstanding stock options.

 

×  Provide separate employer paid supplemental pensions for our executives.

 

×  Require automatic “single-trigger” equity award vesting and severance.

 

×  Incentivize excessively risky business decisions.

   Incorporate meaningful and challenging short- and long-term performance goals in our incentive programs.
   Analyze compensation levels and types of compensation relative to a representative and relevant group of peer companies (our “peer group”).
   Cap annual incentive compensation and performance shares at 150% of the target payout.
   Consider how we may provide compensation in a manner that qualifies for tax deduction.
   Require stock ownership under guidelines that are in line with those of our peer group companies.
   Mandate our NEOs to trade equity exclusively via SEC Rule 10b5-1 trading plans which can be established only during open trading windows at least 30 days in advance of the execution of any trades.
   Maintain a compensation recoupment (i.e., “clawback”) policy to recapture unearned incentive payments upon financial restatements.      
   Use restrictive covenants including non-compete protections.      

Our Executive Compensation Key Objectives

In setting and overseeing our executive compensation program, our Compensation Committee focuses on the following key objectives:

 

   

Attract and retain exceptional and diverse executive talent

 

   

Support business objectives

 

   

Encourage the creation of stockholder value by focusing executive pay more on long-term equity compensation than short-term incentives and cash

 

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Recognize our unique business structure and focus

 

   

Reflect the broad spectrum of talent and diverse sources of market data

 

   

Provide reward opportunities consistent with business performance

We design our executive compensation program in light of these key objectives by:

 

Using a mix of fixed and variable compensation    We heavily weight our NEOs’ compensation mix toward variable, at-risk compensation so that our program encourages behaviors that achieve desired results.
Using a mix of cash and equity incentives    The majority of our NEOs’ total pay is variable and tightly linked to our short- and long-term financial and market performance.
Requiring NEOs to be significant stockholders    We require our NEOs to own specified levels of Premier stock under our stock ownership guidelines to enhance alignment of executive and stockholder interests.
Paying based on individual performance and potential    We consider individual performance and potential for advancement in making compensation decisions.
Regularly reviewing our compensation program versus representative and relevant comparators    We review our executive compensation program at least annually versus our peer group to evaluate competitive compensation levels and alignment with the external market to attract and retain exceptional leaders with strong, balanced skills. The Compensation Committee annually reviews the composition of our peer group so that it remains a relevant and representative comparator for our executive compensation program.
Paying competitive compensation    Each year, we compare and evaluate our compensation program with those of our peer group to assess whether our target compensation levels are consistent with market levels and practice, and adjust compensation levels if determined appropriate. We do not tie any element of our compensation program to a specific percentile of our peer group.

Our Peer Group

We use a peer group of companies to analyze external market compensation practices. We consider this information when implementing competitive and performance-driving compensation packages for our NEOs. With input from management and Mercer, our compensation consultant, the Compensation Committee reviews the peer group annually so that its composition remains appropriate. Each year, we compare our compensation programs with those of our peer group and assess whether our executive compensation programs and target compensation levels are consistent with market practice.

In constructing our peer group, the Compensation Committee reviews information for and considers publicly-traded companies in the U.S. with the following attributes:

 

   

Similar business orientation and industry classifications (healthcare services, technology, distributors, research and consulting)

 

   

Similar services (group purchasing, supply chain services, integrated/specialty pharmacy, technology/data, population health and performance management)

 

   

Revenue that is approximately one-third to three times that of ours

 

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The Compensation Committees also considers other relevant factors, including:

 

   

Market capitalization, total number of employees and revenue less cost of goods sold

 

   

Executive positions similar in breadth, complexity and/or scope of responsibility

 

   

Competitors for customers and executive talent

Based on these considerations as well as input from Mercer and our management, our Compensation Committee reviewed and approved our peer group for fiscal year 2018, comprised of the following companies:

 

•  Advisory Board Company

   •  IHS Markit, Ltd.

•  Allscripts Healthcare Solutions

   •  Magellan Health, Inc.

•  athenahealth, Inc.

   •  Navigant Consulting, Inc.

•  Cerner Corp.

   •  Owens & Minor, Inc.

•  HMS Holdings Corp.

   •  Patterson Companies, Inc.

•  Huron Consulting Group, Inc.

   •  Quality Systems, Inc.

As we grow and evolve, and as the companies in our peer group change (e.g., due to merger, acquisition, delisting), our Compensation Committee will continue to review and reconfigure our peer group as appropriate.

The table below summarizes and compares our revenue and market capitalization to that of the peer group as of June 30, 2017. Excluding Premier, the median annual revenue of the peer group is $1.365 billion, which is lower than our fiscal year 2017 revenue; the median market capitalization of the peer group is $2.030 billion, which is lower than our market capitalization as of June 30, 2017.

 

   

Peer Group Summary 1

   Revenue
($) in billions
   Market Capitalization
($) in billions
Peer Group  

75 th Percentile

Median

25 th Percentile

   4.946 
1.365 
0.805 
   4.792 
2.030 
1.434 
  Premier    1.455 2    5.013 3
  Premier Percentile Rank    51%    73%

 

(1)

Source: S&P Research Insight Database as of June 2017.

(2)

Premier total net revenue for fiscal year 2017.

(3)

Premier market capitalization includes all outstanding Class A common stock and Class B common stock, and is based on the June 30, 2017 closing price ($36.00) of our Class A common stock on the NASDAQ Global Select Market.

Our Competitive Positioning

Our Compensation Committee reviews the median peer group data for total direct compensation (at target), including base salary and annual and long-term incentives. Company and individual performance and other factors, including potential succession and, where applicable, compensation levels relative to general survey data, ultimately determine whether target compensation for our NEOs is above or below the peer group median.

In determining appropriate compensation levels for our NEOs, our Compensation Committee reviews compensation levels for executives in similarly-situated roles at companies in our peer group. Mercer initially compiles the compensation data for the selected peer group; at the request of the Compensation Committee, management reviews and evaluates Mercer’s compensation data.

 

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Our Pay Mix

Our pay mix is an important aspect of our executive compensation program; our use of at-risk pay is designed to drive annual and long-term performance, enhance retention and maintain competitiveness with the external marketplace.

The charts below compare our CEO’s and other NEOs’ total direct compensation mix (base salary, target annual incentive and equity incentive) to the average total direct compensation mix of the CEOs and NEOs of our peer group, as compiled by our compensation consultant.

Pay mix for our NEOs was determined using the NEOs’ annual base salary and target annual and equity incentive (assuming target or 100% performance for performance-based equity under our equity plan) for fiscal year 2018. Pay mix for our peer group was determined using the annual base salary, target annual incentive and annual grant date fair value opportunity of long-term incentive awards as reported in peer group companies’ 2017 proxy statements filed with the SEC.

Our CEO’s total direct compensation mix is in line with the average target total direct compensation of the CEOs in our peer group. Our NEO pay mix is also very similar to the average at-risk pay levels of our peer group.

 

 

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Overview of Primary Executive Compensation Elements

The table below summarizes the primary elements of our NEOs’ fiscal year 2018 executive compensation program, including a description and purpose of each element. In addition to the elements summarized in the table below, our NEOs are eligible to participate in a voluntary non-qualified deferred compensation plan and a company-wide defined contribution (i.e., 401(k) savings) program. A more detailed description of all of our compensation elements, along with related 2018 actions for each element, if applicable, follows this table.

 

               Equity Program
Pay Element   Base Salary   Annual Incentive
Program
  Performance Shares  

 Non-Qualified 
 Stock Options 

(“NQSOs”)

  Time-based
Restricted
Stock
Units
(“RSUs”)

Description

 

•  Ongoing fixed cash compensation

 

•  Annual cash incentive plan based on target amounts for each NEO

•  Actual awards may be higher or lower than target based on business performance

•  Awards are 0% of target for below-threshold performance or 50% to 150% of target for above-threshold performance

 

•  Shares of stock are earned based on our performance during a 3-year performance cycle based on meeting pre-determined performance goals

•  Awards are 0% of target for below-threshold performance or 50% to 150% of target for above-threshold performance

 

•  Stock options allow the executive to make a future purchase of Premier stock at a fixed price determined on the grant date

 

• RSUs vest at defined times after the NEO meets certain service-based requirements

Purpose

 

•  Attract and retain exceptional and diverse talent

•  Reflect business expectations, competencies and values

 

•   Motivate achievement of Premier’s annual financial and member objectives

•   Reflect challenges and share in risk with our performance

•   Balance business unit and corporate focus

•   Provide an annual balanced focus relative to long-term (equity) incentive plan objectives

 

•  Motivate sustained achievement of long-term earnings growth goals

•  Align NEOs’ interests with stockholders’ interests

•  Enhance retention

•  Provide a long-term balanced focus relative to annual incentive plan objectives

Who Receives

  All NEOs                        

When Granted/Paid

  Reviewed annually, paid semi-monthly   Paid within 2.5 months after fiscal year end   Generally granted annually in August

Form of Delivery

  Cash               Premier Equity

Type of Performance

  Short-term/Annual           Long-term

Performance /Vesting

Period 1

  N/A   1 Year Performance Cycle   3 Year Performance Cycle   Vests ratably (1/3 per year) over 3 years   Vests in full after 3 Years

Performance

Measures

  Competencies, values, individual performance, longer-term potential   Revenue growth (40%), Non-GAAP Adjusted EBITDA growth (40%), member performance indices (20%)   3-Year Non-GAAP Adjusted EPS   Stock price appreciation

 

(1)

Subject to accelerated or pro rata vesting based on certain events such as a change in control or the employee’s death, disability or other qualifying termination of service.

 

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DESCRIPTION OF EXECUTIVE COMPENSATION PROGRAM ELEMENTS

Base Salary

Overview

Base salary is the singular fixed pay element of our total direct compensation paid to our NEOs. The Compensation Committee reviews the base salaries for NEOs in similarly-situated roles in our peer group and general survey data, and determines NEOs’ salaries based on roles, responsibilities, Company and individual performance and potential to assume roles with a higher level of responsibility and experience. Our Compensation Committee reviews each NEO’s base salary annually, or more frequently if there is a change in a NEO’s scope of responsibilities, and considers whether base salary increases are warranted. Base salary changes, if any, are generally effective September 1 for all of our employees, including NEOs.

2018 Actions

To maintain their compensation position relative to peer group and general survey data levels and to reflect the importance of retaining them in their positions, the Compensation Committee increased Mr. Anderson’s and Ms. Rakowski’s base salary in fiscal year 2018. The base salaries for all other NEOs remained unchanged for fiscal year 2018. The Compensation Committee’s decision to maintain base salary levels for all other NEOs was not reflective of the NEOs’ performance; rather, our Compensation Committee generally focuses initially on making compensation adjustments to short- and long-term incentive pay, based on the factors listed above.

Our NEOs’ fiscal year 2017 and 2018 base salaries are set out in the table below.

 

NEO

   2017 Base Salary
($)
     2018 Base Salary
($)
     Change

Ms. DeVore

   977,800      977,800      0%

Mr. Alkire

   797,500      797,500      0%

Mr. McKasson

   561,000      561,000      0%

Mr. Anderson

   410,000      481,000      17%

Ms. Rakowski

   460,000      480,000      4%

Mr. Gilbert

   467,500      467,500      0%

Our Annual Incentive Plan

Overview

Our annual incentive plan is a one-year cash-based incentive designed to drive and reward NEOs for delivering annual financial and member results relative to pre-established performance thresholds during a fiscal year. Our Compensation Committee determines the annual incentive structure, performance metrics and goals and each NEO’s threshold, target and maximum award opportunity at the beginning of the fiscal year. At the end of the fiscal year, the Compensation Committee then determines the actual payment amount for each NEO based on our fiscal year financial and member performance.

In fiscal year 2018, the annual incentive plan for our NEOs was based 80% on our financial performance and 20% on certain components of our operating performance. Payouts for financial performance were tied equally to Revenue and Non-GAAP Adjusted EBITDA. Payouts for operating performance were tied equally to Member Quality and Member Cost indices.

 

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The Compensation Committee chose these metrics and weightings for the following reasons:

 

   

Revenue and Non-GAAP Adjusted EBITDA drive top- and bottom-line financial growth in the support of our Mission and Vision;

 

   

Revenue and Non-GAAP Adjusted EBITDA are important indicators of the operational strength and performance of the business, including the ability to provide the capital necessary to execute upon our business and growth strategies and to fund capital expenditures;

 

   

An equal weighting of financial goals helps drive a balance between top- and bottom-line performance so that increasing Revenue does not come at the expense of declining margins;

 

   

Equally weighted member performance indices create greater alignment with our member organizations and incentivize our executives to assist the organizations in becoming top industry performers in quality, safety, supply chain cost and total cost of care; and

 

   

These metrics and weightings incentivize all NEOs to collaborate on, and align to a singular, company-wide focus.

2018 Actions

To maintain compensation position relative to peer group and general survey data levels, increase emphasis on annual financial and operational performance, and reflect increased responsibilities and the importance of retaining them in their position, the Compensation Committee increased Mr. Anderson’s and Ms. Rakowski’s fiscal year 2018 target annual award opportunity to 60% of annual base salary, from 50% and 55%, respectively. The target annual award opportunity for all other NEOs remained unchanged for fiscal year 2018. Mr. Gilbert did not earn an annual incentive plan award for fiscal year 2018 due to a termination of employment on December 31, 2017.

 

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Annual Incentive Plan Calculation

The Compensation Committee used the calculation below to determine fiscal year 2018 annual incentive plan awards for our NEOs. This is the same calculation method the Compensation Committee used to determine awards for fiscal year 2017:

 

 

Annual Base Salary
(As of June 30, 2018)

($)

  X    

 

Target Annual Award Opportunity
(% of Annual Base Salary)

  X    

 

        Total Payout Percentage

        (0% or 50% - 150%)

  =  

 

FY2018 Annual Incentive
Award ($)

Ms. DeVore – 977,800

 

Mr. Alkire – 797,500

 

Mr. McKasson – 561,000

 

Mr. Anderson – 481,000

 

Ms. Rakowski – 480,000

  X  

Ms. DeVore – 125%

 

Mr. Alkire – 100%

 

Mr. McKasson – 100%

 

Mr. Anderson – 60%

 

Ms. Rakowski – 60%

  X  

Revenue: 43.2%

 

Adjusted EBITDA: 29.1%

 

Member Quality: 5.0%

 

Member Cost: 8.6%

 

Total Payout Percentage: 85.9%

  =  

Ms. DeVore – 1,049,913

 

Mr. Alkire – 685,053

 

Mr. McKasson – 481,899

 

Mr. Anderson – 247,907

 

Ms. Rakowski – 247,392

The charts below discuss the details of our annual incentive plan elements and their applicable provisions and calculations for fiscal year 2018.

 

Plan Element        Description / Provisions  

Annual Base Salary

      Annual base salary as of June 30, 2018.

 

Target Annual Award

Opportunity

(% of Base Salary)

      Percentage of Annual Base Salary determined by the Compensation Committee based on each NEO’s role, responsibilities, external market (including our peer group and general survey data), potential and performance, and also dictated by NEOs’ employment agreements.

 

         

Total Payout Percentage

(0% - 150%)

    In early fiscal year 2018, the Compensation Committee approved the following performance metrics, weightings, performance goals and payout ranges for our annual incentive plan.

 

     

Performance Metric 2

 

Weighting

  Performance Goals 1        
  Threshold 3     Target 3     Stretch 3     Payout Range 4  
    Revenue   40%     $1,567.9       $1,648.1       $1,730.5       0% - 150%  
    Adjusted EBITDA 5   40%     $531.7       $556.8       $584.6       0% - 150%  
    Member Quality Index   10%     27%       29%       31%       0% - 150%  
    Member Cost Index   10%     50%       100%       150%       0% - 150%  
   

 

(1)    Inmillions for Revenue and Adjusted EBITDA.

(2)    See “—Description of Executive Compensation Elements—Annual Incentive Plan and Equity Plan Metric Definitions” for the descriptions of these performance metrics.

(3)    The payout range for each metric is 50% at threshold, 100% at target and 150% at or above stretch performance. The payout percentage for performance below threshold is 0%.

(4)    The total annual incentive award is capped at 150% of target.

(5)    See Appendix B for a reconciliation of Non-GAAP Adjusted EBITDA to GAAP net income.

 

 

 

 

 

   

 

Following the end of fiscal year 2018, the Compensation Committee evaluated performance against the performance goals and approved the achievement and payout percentages for each of the metrics, as set out in the table below.

 

     

Performance Metric

  Performance Results  
      2018 Actual Performance 1     Payout Percentage  
   

Revenue

    $1,661.3       43.2%  
   

Adjusted EBITDA 3

    $543.1       29.1%  
   

Member Quality Index

    27.0%       5.0%  
   

Member Cost Index

    86.2%       8.6%  
   

Total Payout Percentage

 

    85.9%  
     

 

(1)    Inmillions for Revenue and Adjusted EBITDA.

(2)    Calculated as the weighting for each metric multiplied by the percentage achievement based on the performance goal table. Percentages reflect interpolation between threshold and target, or target and stretch achievement, as applicable, and are rounded.

(3)    See Appendix B for a reconciliation of Non-GAAP Adjusted EBITDA to GAAP net income.

 

 

 

                 
Fiscal Year 2018 Annual Incentive Award     The table below sets out the potential payouts at threshold, target and stretch performance as well as the actual fiscal year 2018 annual incentive plan payout for each NEO.

 

     

NEO

 

Threshold

(50% Payout)

($)

  Target
(100% Payout)
($)
    Stretch
(150% Payout)
($)
    FY2018 Award
($)
 
    Ms. DeVore   611,125     1,222,250       1,833,375       1,049,913  
    Mr. Alkire   398,750     797,500       1,196,250       685,053  
    Mr. McKasson   280,500     561,000       841,500       481,899  
    Mr. Anderson   144,300     288,600       432,900       247,907  
      Ms. Rakowski   144,000     288,000       432,200       247,392  

 

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Our Equity Plan

Overview

We design our equity grants to align our NEOs’ interests with those of our stockholders. In fiscal year 2018, the Compensation Committee granted equity awards to our NEOs, whereby 60% of the grant represented performance-based restricted stock units, 20% of the grant value represented nonqualified stock options (“NQSOs”), and 20% of the grant represented time-based restricted stock units (“RSUs”), as outlined in the chart below. The Compensation Committee feels this mix provides proper alignment with stockholders’ interests and has an appropriate emphasis on long-term company performance.

The Compensation Committee determines the type of awards to be granted and the amount of individual awards granted to NEOs, based on an analysis of competitive long-term incentive market practices within our peer group generally, and across the healthcare supply chain and informatics industry (based on compensation surveys) for each executive’s position. The Compensation Committee believes this mix of equity vehicles supports our long-term objectives by emphasizing performance-based equity (performance shares and NQSOs) over time-based equity awards (RSUs).

The annual grant date for performance shares, NQSOs and RSUs is typically in the second month of the first quarter of the fiscal year; fiscal year 2018 equity awards were granted on August 25, 2017.

 

 

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2018 Grant Calculations

The Compensation Committee uses the following calculation to determine the (i) target number of shares underlying performance shares, NQSOs and RSUs awarded to each NEO, and (ii) actual number of shares earned by each NEO under the performance shares at the end of the performance cycle.

 

 

LOGOClick to enlarge

Target Award

Each NEO’s equity target award is expressed as a percentage of her/his annual base salary, and is determined by the Compensation Committee annually based on each NEO’s role, responsibilities, external market information (including the long-term incentive practices of our peer group) and long-term NEO potential and performance.

2018 Actions

To maintain their compensation position relative to peer group and general survey data levels, and to reflect the importance of retaining each in their position, the Compensation Committee increased the equity target awards for Mr. Alkire, Mr. McKasson, Mr. Anderson and Ms. Rakowski. Mr. Alkire’s fiscal year 2018 equity award target was changed from 300% to 325%. Mr. McKasson’s fiscal year 2018 equity target was changed from 275% to 300%. Mr. Anderson’s fiscal year 2018 equity target was changed from 122% to 150%. Ms. Rakowski’s fiscal year 2018 equity target was changed from 100% to 150%. The equity awards for Ms. Rakowski and Mr. Anderson also correspondingly increased due to increases in their respective annual base salaries.

The fiscal year 2018 equity grants for our NEOs are summarized in the table below:

 

NEO

  Annual
Base Salary 1

($)
  Equity
Target
Award

(% of Base
Salary)
  Target
Award 2

($)
  Performance
Shares Grant
Value – 60%

($)
  NQSO Grant
Value – 20%

($)
  RSUs Grant
Value – 20%

($)
  Target
Performance-
Shares 3

(#)
  NQSOs 4
(#)
  RSUs 5
(#)

Ms. DeVore

  977,800   450%   4,400,100   2,640,060   880,020   880,020   80,245   77,053   26,749

Mr. Alkire

  797,500   325%   2,591,875   1,555,125   518,375   518,375   47,269   45,388   15,757

Mr. McKasson

  561,000   300%   1,683,000   1,009,800   336,600   336,600   30,694   29,472   10,232

Mr. Anderson

  481,000   150%   721,500   432,900   144,300   144,300   13,159   12,635   4,387

Ms. Rakowski

  480,000   150%   720,000   432,000   144,000   144,000   13,131   12,609   4,377

Mr. Gilbert

  467,500   200%   935,000   561,000   187,000   187,000   17,052   16,374   5,684

 

1)

Annual base salary as of September 1, 2017.

2)

Target award equals the NEO’s Annual Base Salary multiplied by the NEO’s Target Award percentage. See the “Summary Compensation Table for Fiscal Year 2018” below for the grant date accounting value of the equity awards for our NEOs.

3)

Number of shares granted as performance shares equals the grant date value divided by $32.90, the closing price of our Class A common stock on August 25, 2017, rounded up to the next highest share.

4)

Number of NQSOs equals the NQSO grant value divided by $11.4211, the Black-Scholes estimated value of a stock option granted as of August 25, 2017, rounded up to the next highest number of options.

5)

Number of shares granted as RSUs equals the grant value divided by $32.90, the closing price of our Class A common stock on August 25, 2017, rounded up to the next highest share.

 

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Performance Shares

Performance shares are designed to focus on and drive achievement of long-term financial objectives, and to maximize stockholder return. The target number of performance shares granted to NEOs is based on the closing price of our Class A common stock as of the grant date, August 25, 2017. The fiscal year 2018 grants are for the fiscal three-year performance cycle beginning on July 1, 2017, and ending June 30, 2020. In August 2017, the Compensation Committee established a threshold, target and stretch performance level for performance shares based on our long-term growth strategy. Following the end of the performance cycle, the Compensation Committee will determine and award shares based on performance results. For performance below threshold, no shares will be awarded; for performance at threshold, 50% of target shares will be awarded; at target, 100% of target shares will be awarded; at stretch, 150% of target shares will be awarded. For performance between threshold and target or between target and stretch, the Compensation Committee will use straight-line interpolation to determine results and corresponding awards. Provided the Compensation Committee certifies performance at or above the threshold level, shares will generally be awarded in the first fiscal quarter following the end of the performance cycle. See the “Grants of Plan-Based Awards in Fiscal Year 2018” table under “—Executive Compensation Tables” below for potential share awards based on threshold, target and stretch performance.

Non-Qualified Stock Options and Restricted Stock Units

For fiscal year 2018, in addition to performance shares as discussed above, which represented 60% of our NEOs’ total target equity award opportunity, the Compensation Committee granted 20% of our NEOs’ total target equity award opportunity in NQSOs and 20% in RSUs. This equity mix balances the performance value of NQSOs with the retention reinforcement of RSUs. NQSOs vest ratably over three years, one-third on or about each anniversary of the grant date. The number of NQSOs granted is based on the Black-Scholes estimated value as of the grant date, and the exercise price for NQSOs is the closing price of our Class A common stock on the grant date. RSUs vest 100% on or about the third anniversary of the grant date. The size of the RSU grant is based on the closing price of our Class A common stock on the grant date. Actual fiscal year 2018 equity grants for our NEOs are presented in the “2018 Equity Grants” table above and in the “Grants of Plan-Based Awards in Fiscal Year 2018” table under “—Executive Compensation Tables” below.

Performance Goal for Performance Shares

The actual number of shares that will be awarded to our NEOs at the end of the performance cycle, pursuant to the 2018 Performance Share grants, will be based 100% on Non-GAAP Adjusted EPS performance. See “—Annual Incentive Plan and Equity Plan Metrics Definitions” and Appendix B for a description of this metric.

The Compensation Committee used Non-GAAP Adjusted EPS for the 2018 performance shares grant because it believes:

 

   

Adjusted EPS drives a balance of long-term top- and bottom-line growth;

 

   

Adjusted EPS is a critical indicator of the long-term operational strength of our business, including the ability to provide cash flows necessary to execute upon our business and growth strategies and fund strategic capital expenditures; and

 

   

Adjusted EPS performance is aligned with long-term stockholder value creation.

 

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Amounts Earned under Fiscal Year 2016 Performance Share Grants

Following the end of fiscal year 2018, our Compensation Committee determined the payouts under our performance shares granted in fiscal year 2016, which is based on our performance during the 2016 through 2018 fiscal years. The table below summarizes the performance metrics, weightings and goals for these awards along with our actual performance and earned percentage. In determining actual performance under fiscal year 2016 performance shares, the Compensation Committee neutralized (i.e., excluded) the benefit of the Company’s tax rate decrease as a result of the TCJA. The Compensation Committee determined that actual performance achieved/exceeded the stretch performance level.

 

Performance Shares Metric 1

   Weighting    2016 – 2018 Performance Cycle Results       
   Threshold    Target    Stretch    Actual
Performance
   Earned
Percentage
 

Three-Year Non-GAAP Adjusted EPS

(Compound Annual Growth Rate)

   100%    8.5%    10.0%    12.5%    13.1% 2        150.0%  

Total Earned Percentage

     150.0%  

 

(1)

See “—Annual Incentive Plan and Equity Plan Metrics Definitions” for the description of these metrics.

(2)

In determining actual performance under fiscal year 2016 performance shares, the Compensation Committee neutralized the benefit of the Company’s tax rate decrease as a result of the TCJA. Including the impact (i.e., benefit) of the TCJA would have resulted in actual performance of 17.3%, which also exceeded the stretch performance level and would have resulted in an earned percentage of 150.0%. See Appendix B to this proxy statement for the neutralization reconciliation of our Non-GAAP Adjusted EPS to actual performance for fiscal year 2016 performance shares.

The number of shares issued to our NEOs under the 2016 Performance Share grants is equal to the target number of performance shares multiplied by the total earned percentage as set forth below.

 

NEO

   Target Number
of Performance Shares
     Total Earned Percentage      Number of Issued Shares

Ms. DeVore

   49,370      150.0%      74,055

Mr. Alkire

   26,845      150.0%      40,267

Mr. McKasson

   14,592      150.0%      21,888

Mr. Anderson

   5,204      150.0%      7,807

Ms. Rakowski (1)

   N/A      N/A      N/A

Mr. Gilbert (2)

   6,780      150.0%      10,171

 

(1)

Ms. Rakowski was hired in June 2016 and did not receive any 2016 performance share grants.

(2)

Mr. Gilbert’s target number of performance shares was prorated (i.e., reduced) based on the number of days of his employment during the three-year performance cycle through his termination of employment on December 31, 2017.

 

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Requiring Stock Ownership

To further align our NEOs’ and stockholders’ interests, the Compensation Committee requires each executive to accumulate and hold a significant amount of our Class A common stock. We believe our stock ownership requirements are comparable to those of our peer group. The table below summarizes our ownership and holding requirement provisions.

 

Provisions

 

Description of Provisions

Ownership requirement  

•  Five times base salary for our CEO

•  Three times base salary for our COO, CFO and President, Supply Chain Services

•  One times base salary for our other executive officers

Time to meet requirement (phase-in period)  

•  Five years from (i) NEO’s employment date, or (ii) promotion to applicable executive level, or (iii) the date of our IPO, September 26, 2013, whichever is later

Equity included as ownership  

•  Shares underlying unvested RSUs and time-based restricted stock awards

•  Earned performance-based shares and performance-based restricted stock awards

•  Shares owned directly

•  Shares owned indirectly (by a spouse or a trust for an immediate family member)

•  Shares held in our benefit plans

Holding requirements  

•  Until the ownership requirement is met, NEOs must hold shares acquired under our equity program (including stock after restrictions have lapsed, shares awarded under our performance-based awards and shares acquired upon the exercise of a NQSO), net applicable shares withheld for taxes or for payment of exercise price, as follows:

¡    CEO—must hold 50% of net shares received (after tax withholding) from vesting of equity awards

¡    All other NEOs—must hold 35% of net shares received (after tax withholding) from vesting of equity awards

As of June 30, 2018, all NEOs were within their respective five-year phase-in periods. The Compensation Committee evaluates the status of stock ownership requirements annually in August. The phase-in period for Ms. DeVore and Messrs. Alkire and McKasson ended in September 2018. As of June 30, 2018, Ms. DeVore held Premier stock at a level greater than five times her base salary, and Messrs. Alkire and McKasson held greater than three times their respective base salaries. Thus, they meet their stock ownership requirements as determined by the Compensation Committee’s review.

Annual Incentive Plan and Equity Plan Metric Definitions

As noted above, we used Revenue, Non-GAAP Adjusted EBITDA and Non-GAAP Adjusted EPS for our NEO’s incentive plans. The Compensation Committee believes that Revenue, Adjusted EBITDA and Adjusted EPS reflect the items that management has under its control through operational performance.

We believe Adjusted EBITDA assists our Compensation Committee and management in making financial, operating and strategic decisions and in evaluating our performance on a consistent basis from period to period. Doing so removes the impact of our asset base (primarily depreciation and amortization) and items outside the control of our management team (e.g., taxes), as well as other non-cash (impairment of intangible assets, purchase accounting adjustments and stock-based compensation) and non-recurring items (strategic and financial restructuring expenses) from operating results.

 

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We also believe Adjusted EPS aligns our long-term focus and our stockholders’ interests while assisting our Compensation Committee and management in making financial, operating and strategic decisions and in evaluating our performance on a consistent basis from period to period. Doing so removes non-cash (such as impairment of intangible assets, purchase accounting adjustments and stock-based compensation) and non-recurring items (such as strategic and financial restructuring expenses). It also eliminates the variability of non-controlling interest as a result of member owner exchanges of Class B common units into shares of Class A common stock.

See Appendix B to this proxy statement and our 2018 Form 10-K for additional information on our use of non-GAAP financial metrics and definitions of terms used in the table below as well as a reconciliation to comparable GAAP measures.

 

Metric

 

Definitions

 

Rationale

Revenue   Revenue is net revenue and consists of (i) service revenue which includes net administrative fees revenue and other services and support revenue and (ii) product revenue. Net administrative fees revenue consists of net GPO administrative fees in the Supply Chain Services segment. Other services and support revenue consists primarily of fees generated by the Performance Services segment in connection with our SaaS informatics products subscriptions, advisory services and performance improvement collaborative subscriptions. Product revenue consists of integrated pharmacy and direct sourcing product sales, which are included in the Supply Chain Services segment. We recognize revenue when (i) there is persuasive evidence of an arrangement, (ii) the fee is fixed or determinable, (iii) services have been rendered and payment has been contractually earned and (iv) collectibility is reasonably assured.   Revenue measures the top-line growth of the business through our diversification of offerings and core business growth with new and existing members.
Non-GAAP Adjusted EBITDA   EBITDA is defined as net income before interest and investment income, net, income tax expense, depreciation and amortization, and amortization of purchased intangible assets. Adjusted EBITDA is defined as EBITDA before merger and acquisition related expenses and non-recurring, non-cash or non-operating items and including equity in net income (loss) of unconsolidated affiliates. Non-recurring items include income or expenses and other items that have not been earned or incurred within the prior two years and are not expected to recur within the next two years. Such items include certain strategic and financial restructuring expenses. Non-operating items include gains or losses on disposal of assets and interest and investment income or expense.   Adjusted EBITDA is an indicator of the operational strength and performance of the business. Adjusted EBITDA allows the Compensation Committee and management to assess performance without regard to financing methods and capital structure and without the impact of other matters that management does not consider indicative of the operating performance of the business.

 

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Metric

 

Definitions

 

Rationale

Non-GAAP Adjusted Fully Distributed Earnings Per Share (“Adjusted EPS”)   Non-GAAP Adjusted EPS is Adjusted Fully Distributed Net Income divided by diluted weighted average shares. We define Adjusted Fully Distributed Net Income as net income attributable to us (i) excluding income tax expense, (ii) excluding the impact of adjustment of redeemable limited partners’ capital to redemption amount, (iii) excluding the effect of non-recurring and non-cash items, (iv) assuming the exchange of all the Class B common units for shares of Class A common stock, which results in the elimination of non-controlling interest in Premier LP and (v) reflecting an adjustment for income tax expense on Non-GAAP fully distributed net income before income taxes at our estimated effective income tax rate.   Non-GAAP Adjusted EPS measures the portion of total profit that is attributable to Premier’s Class A stockholders on a fully converted basis. Adjusted EPS aligns employees with our long-term focus and our stockholders’ interests and is an indicator of the long-term operational strength and performance of the business. Adjusted EPS allows the Compensation Committee and management to assess performance without regard to financing methods and capital structure and without the impact of other matters that management does not consider indicative of the operating performance of the business.
Member Quality Performance Index   Index of hospitals surpassing the “top performance threshold” in the following four priorities: readmission, harm, mortality and patient experience. This index was developed for members that participate in Premier’s quality collaborative in order to measure hospitals’ quality of care performance. This index measures the number of hospitals that participate in the quality collaborative that meet or surpass the top performance thresholds in each quality measure (25th percentile as fixed in the baseline year of 2016). At the beginning of the year, performance goals are independently certified by National Economic Research Associates (NERA); at the conclusion of the year, actual performance attainment is also reviewed and certified by NERA.   The Member Quality Performance Index is an indicator of Premier’s impact on members’ performance in quality and safety. Aligns employees’ interests with those of our members.
Member Cost Performance Index   Index of hospitals surpassing “top performance threshold” in “total cost” and average year-over-year improvement in supply expense for members that submit supply chain analytics data. This index was developed for member hospitals in order to measure their supply chain outcomes. At the beginning of the year, performance goals are independently certified by National Economic Research Associates (NERA); at the conclusion of the year, actual performance attainment is also reviewed and certified by NERA.   The Member Cost Performance Index is an indicator of Premier’s impact on members’ performance in supply chain cost and total cost of care. Aligns employees’ interests with those of our members.

 

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Non-Qualified Deferred Compensation Plan

NEOs are eligible to participate in our voluntary, non-qualified executive Deferred Compensation Plan, which is provided for recruitment purposes and to assist executives in managing their future cash flow. The program allows NEOs to defer, on a pre-tax basis, up to 30% of their base salary and annual incentive plan award, and receive a company matching contribution of 100% of the first 3% deferred and 50% of the next 2% deferred. We provide this match for eligible compensation above the annual IRS compensation limit. Distributions are generally not allowed while NEOs are actively employed. The investment choices are similar to those offered to eligible employees in our 401(k) plan, and the plan does not offer above-market earnings. NEOs elect to receive post-separation distributions in either a lump sum or in annual installments over five years. For additional information on this program, see the “Summary Compensation Table for Fiscal Year 2018” and “Non-Qualified Deferred Compensation Benefits for Fiscal Year 2018” tables below.

Defined Contribution (401(k) Savings) Program

Our NEOs are eligible to participate in our qualified defined contribution 401(k) Plan, under which they have the opportunity to defer a portion of their eligible compensation, up to tax code limitations, and receive a company matching contribution of 100% of the first 3% of contributions and 50% of the next 2% of contributions. We provide this match for eligible compensation below the annual IRS compensation limit.

Employment Agreements

We extend employment agreements to our NEOs, which include non-compete covenants enforceable under the laws of North Carolina, where our corporate headquarters are located. The employment agreements provide severance protection before and after a change in control event and a minimum level of benefits to our NEOs during the term of the agreement. For additional details, see “—Employment Agreements” below.

Change in Control Protection

We provide our NEOs with enhanced severance benefits and additional rights to payment of incentive compensation in the event of a change in control. We structure separation payments to help assure that key personnel, including our NEOs, would be available to assist in the successful transition following a change in control and provide a competitive level of severance protection if the executive officer is involuntarily terminated without cause or resigns for good reason within two years following a change in control. We do not provide automatic vesting of benefits upon a change in control transaction irrespective of performance. In the event that payments in connection with a change in control would trigger an excise tax under Code Section 4999, our agreements limit payments to an amount that will not trigger this tax unless paying all the benefits would provide a larger after-tax benefit to the NEO. We do not provide any tax gross-ups for taxes payable on change in control benefits. We describe the severance arrangements and other benefits provided to NEOs on a change in control (as well as the equity treatment upon certain separations in the event of a change in control) under “—Potential Payments Upon Termination” below.

Executive Perquisites

We do not offer our NEOs the executive perquisites that many of our peer group companies offer, such as personal usage of company aircraft, company vehicles or auto allowances, personal drivers, health/country club memberships, etc. We offer our CEO reimbursement for her out-of-pocket medical expenses (see “—Employment Agreements” below for details). We also offer all employees disability benefits, which are calculated as a percentage of base salary, and for which our senior executives, including our NEOs, would be entitled to receive a higher benefit in the event of their disability. We do not provide tax gross-ups.

 

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2018 COMPENSATION ACTIONS FOR OUR NAMED EXECUTIVE OFFICERS

The table below sets out a summary of fiscal year 2018 compensation actions for each of our NEOs along with references to the applicable section describing each compensation element in this proxy statement.

 

    

Base Salary Increase

(%)

   2018 Annual Incentive Plan
Award ($)
  

2018 Equity Grant

(Shares)

NEO

  

“—Description of Executive
Compensation Elements—
Base Salary”

   “—Description of Executive
Compensation Elements—Our
Annual Incentive Plan”
  

“—Description of Executive
Compensation Elements—Our
Equity Plan”

Ms. DeVore

   0%    1,049,913   

80,245 target performance shares

77,053 NQSOs

26,749 RSUs

Mr. Alkire

   0%    685,053   

47,269 target performance shares

45,388 NQSOs

15,757 RSUs

Mr. McKasson

   0%    481,899   

30,694 target performance shares

29,472 NQSOs

10,232 RSUs

Mr. Anderson

   17%    247,907   

13,159 target performance shares

12,635 NQSOs

4,387 RSUs

Ms. Rakowski

   4%    247,392   

13,131 target performance shares

12,609 NQSOs

4,377 RSUs

Mr. Gilbert (1)

   0%    0   

17,052 target performance shares

16,374 NQSOs

5,684 RSUs

 

(1)

Mr. Gilbert served as President, Supply Chain Services through October 31, 2017, and served in a transition role from November 1, 2017, through December 31, 2017 and did not receive a 2018 Annual Incentive Plan award.

CLAWBACK POLICY

We have adopted compensation recoupment or “clawback” policies with respect to all incentive compensation awards, including amounts payable under our annual incentive plan and the equity awards granted under our equity plan that may be earned by our current and former executive officers. If we are required to restate our financial statements due to NEOs’ material noncompliance with any financial reporting requirements under the federal securities laws, our NEOs who received incentive compensation based on erroneous data in a materially noncompliant financial statement must repay the amount in excess of what they would have received based on that restatement. The repayment obligation extends to any incentive compensation a NEO receives during the three-year period preceding a restatement.

The Board has the sole discretion and authority to: (i) determine the amount of any incentive-based compensation owed by any current or former executive officer; (ii) determine the means, timing (which in all circumstances will be prompt) and any other requirements by which reimbursement is required to occur, which may include, without limitation, forfeiture of any outstanding incentive award; and (iii) impose any other terms, conditions or procedures (e.g., the imposition of interest charges on un-repaid amounts) to govern the current or former executive officer’s repayment of any incentive-based compensation.

 

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The Board has discretion to take such actions it deems necessary to address the events that gave rise to the restatement and to prevent its recurrence, including, to the extent permitted under applicable law:

 

   

Dismissing the executive;

 

   

Adjusting the future compensation of the executive; and/or

 

   

Authorizing legal action or taking other action to enforce the executive’s obligations to us.

TRADING RESTRICTIONS, ANTI-HEDGING, AND ANTI-PLEDGING POLICY

Our insider trading policy limits the timing and types of transactions in our securities by our insiders, including our NEOs. Among other restrictions, the policy:

 

   

Allows insiders to trade our securities only during open trading window periods (following earnings releases) or, in the case of our NEOs, pursuant to a written trading plan adopted under SEC Rule 10b5-1, and only after they have obtained pre-clearance for such transactions or plan; and

 

   

Prohibits insiders from trading in options, entering into transactions in warrants, puts or calls and/or any other derivative or hedging transactions on our securities (other than awards granted under our equity incentive plans).

Additionally, our insider trading policy prohibits our insiders from holding our securities in margin accounts or pledging our securities as collateral for a loan.

QUALIFYING COMPENSATION FOR TAX DEDUCTIBILITY

Section 162(m) generally disallows a tax deduction to public corporations for compensation over $1 million paid for any fiscal year to a company’s “covered executives,” which include anyone who served as chief executive officer or chief financial officer, or was one of the three other highest paid executive officers who served at any time during the last completed tax year. Chief financial officers were not considered covered employees for tax years beginning before January 1, 2018. Section 162(m) exempts qualifying performance-based compensation paid to executive officers with respect to tax years beginning before January 1, 2018 (including our fiscal year 2018), and in future tax years as well but only if payable under a written binding contract in effect on, and not materially modified after, November 2, 2017. Thus, performance-based awards that are deductible in our current fiscal year and performance-based awards outstanding on November 2, 2017, under a written binding contract that is not materially modified after that date may be exempt from the deduction limit if applicable requirements are met.

The Compensation Committee has historically structured stock options and incentive awards to executive officers with the intention of qualifying for an exemption to the $1 million deduction limit. On August 21, 2018, the IRS issued initial guidance regarding its interpretation of the transition relief noted above, and the Committee is considering the impact of this guidance with respect to awards granted on or before November 2, 2017. There can be no guarantee that compensation awarded prior to November 2, 2017 will qualify for transition relief under the guidance or otherwise.

The Committee believes that stockholder interests are best served if its discretion and flexibility in awarding compensation is not restricted, even though some compensation awards may result in non-deductible compensation expenses. The Committee expects to approve compensation for periods after fiscal year 2018 that are not fully deductible for income tax purposes.

 

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EXECUTIVE COMPENSATION TABLES

Summary Compensation Table for Fiscal Year 2018

For the fiscal year ended June 30, 2018, the following table shows compensation awarded or paid to, or earned by our Chief Executive Officer, Chief Financial Officer and the three most highly compensated executive officers who were serving as executive officers (other than as our Chief Executive Officer or Chief Financial Officer) at the end of fiscal year 2018 (the “named executive officers” or “NEOs”).

 

Name and Principal Position(a)

  Year
(b)
  Salary
($)(c)
  Bonus
($)(d)
  Stock
Awards

($)(e)
  Option
Awards

($)(f)
  Non-Equity
Incentive
Plan
Compensation

($)(g)
  All Other
Compensation

($)(h)
  Total
(i)

Susan D. DeVore

President and Chief

Executive Officer

  2018
2017
2016
  977,838
977,838
977,838
  0
0
0
  3,520,103
3,520,113
2,640,061
     880,030
   880,026
1,760,577
  1,049,913
   743,128
1,142,603
     77,935
   93,560
   98,764
  6,505,818
6,214,665
6,619,843

Michael J. Alkire

Chief Operating Officer

  2018
2017
2016
  797,531
797,531
797,531
  0
0
0
  2,073,555
1,914,034
1,435,554
     518,381
   478,503
   957,292
     685,053
   484,880
   745,532
     51,297
   61,723
   65,416
  4,125,817
3,736,670
4,001,325

Craig S. McKasson

Senior Vice President,

Chief Financial Officer

  2018
2017
2016
  561,622
552,522
510,020
  0
0
0
  1,346,465
1,234,223
   780,307
     336,603
   308,553
   520,366
     481,899
   341,088
   476,767
     36,085
   22,125
   41,833
  2,762,674
2,458,511
2,329,293

Leigh T. Anderson,

Senior Vice President,

President Performance Services

  2018   469,185   0      577,263      144,306      247,907      23,753   1,462,414

Kelly E. Rakowski

Senior Vice President,

Premier Performance Partners

(through July 20, 2018)

  2018   476,685   0      576,013      144,009      247,392   129,221   1,573,320

Durral R. Gilbert

President, Supply Chain Services

(through October 31, 2017)

  2018

2017
2016

  233,759

467,518
467,518

  0

0
0

     748,014

   748,048
   434,823

     187,009

   187,011
   289,937

  0

   170,544
   240,370

  296,127

   28,316
   29,506

  1,464,909

1,601,436
1,462,154

 

Salary (Column (c))

Reflects the salary earned in fiscal years 2018, 2017 and 2016 from July 1 through June 30 of each year. The 2018 salary reported for Mr. Gilbert includes his salary during his active employment and his transition period which ended December 31, 2017.

Bonus (Column (d))

No discretionary bonuses were awarded to the NEOs in 2018, 2017 or 2016.

Stock Awards (Column (e))

The amounts reported in the Stock Awards column are the grant date fair value of stock awards determined pursuant to ASC Topic 718. Amounts reflect the aggregate grant date fair value of the performance shares and RSUs granted to the NEOs on August 25, 2017; and the performance-based restricted stock awards and time-based restricted stock awards, the performance shares and RSUs granted to the NEOs in August 2015 and August 2016, respectively.

Performance-based restricted stock awards and performance shares provide an opportunity for employees to earn and vest in Class A common stock if specified performance measures are met for a specified performance cycle, which is typically three years. If the minimum performance measure is not met, no award is earned. If at least the minimum performance measure is attained, the earned shares may range from 50% to 150% of the target number of shares. The amounts reported in this table for performance-based restricted stock awards and performance shares are disclosed at target (100%), which is the probable outcome (as of the grant date). Details regarding the performance shares threshold, target and maximum values can be found in the “Grants of Plan-Based Awards in Fiscal Year 2018” table below .

 

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Time-based restricted stock awards and RSUs provide an opportunity for employees to vest in Class A common stock if the executive remains employed through a specified date, typically three years from grant. The time-based restricted stock awards and RSUs reported above and granted in fiscal years 2016 and 2017 are based on the fair value of our Class A common stock on the grant date in the same manner as described above for performance-based restricted stock awards and performance shares.

There can be no assurance that the performance-based restricted stock awards, performance shares, time-based restricted stock awards and RSUs granted to our NEOs will ever be earned or that the value of these awards as earned will equal the amounts disclosed in the Summary Compensation Table for Fiscal Year 2018. The stock price assumption used to calculate the compensation cost is disclosed in Note 16—Stock Based Compensation to our consolidated financial statements included in our 2018 Form 10-K.

To see the value actually received under the 2016 performance shares with respect to the three-year performance cycle ended June 30, 2018, please refer to the “Option Exercises and Stock Vested in Fiscal Year 2018” table below. Additional information on all outstanding stock awards is reflected in the “Outstanding Equity Awards at June 30, 2018” table below.

Options Awards (Column (f))

The amounts reported in the Option Awards column are the grant date fair value of stock option awards granted to the NEOs on August 25, 2017, August 31, 2016 and August 31, 2015, calculated in accordance with ASC Topic 718. The assumptions used to calculate the fair value for this purpose are disclosed in Note 16—Stock Based Compensation to our consolidated financial statements included in our 2018 Form 10-K. There can be no assurance that the options will ever be exercised (in which case no value will be realized by the executive) or that the value on exercise will equal the fair value.

To see the value actually received upon exercise of options by the NEOs in 2018, refer to the “Option Exercises and Stock Vested in Fiscal Year 2018” table below. Additional information on all outstanding option awards is reflected in the “Outstanding Equity Awards at June 30, 2018” table below.

Non-Equity Incentive Plan (Column (g))

The amounts reported in the Non-Equity Incentive Plan are the annual cash incentives earned by our NEOs under our Annual Incentive Plan. Mr. Gilbert did not receive an incentive payment for 2018.

All Other Compensation (Column (h))

The amounts reported in the All Other Compensation column consist of employer contributions and deferrals allocated to our NEOs under our 401(k) plan and Deferred Compensation Plan: $11,000, $11,000, $11,000, $12,200, $11,200 and $1,450 for Ms. DeVore and Messrs. Alkire and McKasson, Mr. Anderson, Ms. Rakowski and Mr. Gilbert, respectively, with respect to the 401(k) plan and $57,839, $40,296, $25,084, $11,533, $18,020 and $14,723 for Ms. DeVore and Messrs. Alkire and McKasson, Mr. Anderson, Ms. Rakowski and Mr. Gilbert, respectively, with respect to the Deferred Compensation Plan. None of these amounts reflect amounts contributed by our NEOs under the Deferred Compensation Plan, which are reported in the Deferred Compensation Plan table. The amount reported in the All Other Compensation column also consists of employer contributions of $9,096 for Ms. DeVore for reimbursement of her out-of-pocket medical expenses per her employment agreement. The amount reported in the All Other Compensation column also includes of a payment of $100,000 to Ms. Rakowski in connection with her employment offer, which was payable upon her first anniversary of employment. In addition to matched amounts under the 401(k) plan and Deferred Compensation Plan stated above, the amount reported in the All Other Compensation column for Mr. Gilbert also includes $279,954, representing severance payments outlined in “Potential Payments Upon Termination” for the period of January 1, 2018 through June 30, 2018, plus the payout of unused vacation time upon his termination, pursuant to company policy.

 

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Grants of Plan-Based Awards in Fiscal Year 2018

The following table sets forth information with respect to grants of plan-based awards to the NEOs during the fiscal year ended June 30, 2018.

 

      Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards
    Estimated Future Payouts
Under Equity Incentive Plan
Awards
                         

Name(a)

  Approval Date /
Grant Date(b)
    Threshold
($)(c)
    Target
($)(d)
    Maximum
($)(e)
    Threshold
(#)(f)
    Target
(#)(g)
    Maximum
(#)(h)
    All
Other
Stock
Awards:
Number
of
Shares
of Stock
or Units

(#)(i)
    All Other
Option
Awards:
Number
of
Securities
Under-
lying
Options

(#)(j)
    Exercise
or Base
Price of
Option
Awards
($/Sh)

(k)
    Grant
Date
Fair
Value of
Stock
and
Option
Awards

(l)
 

Susan D. DeVore

    8/9/2017       8/25/2017       611,125       1,222,250       1,833,375       40,123       80,245       120,368       26,749       77,053       32.90       4,400,133  

Michael J. Alkire

    8/9/2017       8/25/2017       398,750       797,500       1,196,250       23,635       47,269       70,904       15,757       45,388       32.90       2,591,936  

Craig S. McKasson

    8/9/2017       8/25/2017       280,500       561,000       841,500       15,347       30,694       46,041       10,232       29,472       32.90       1,683,068  

Leigh T. Anderson

    8/9/2017       8/25/2017       144,300       288,600       432,900       6,580       13,159       19,739       4,387       12,635       32.90       721,569  

Kelly E. Rakowski

    8/9/2017       8/25/2017       144,000       288,000       432,000       6,566       13,131       19,697       4,377       12,609       32.90       720,022  

Durral R. Gilbert

    8/9/2017       8/25/2017       140,250       280,500       420,750       8,526       17,052       25,578       5,684       16,374       32.90       935,023  

 

Grant Date (Column (b))

The awards shown were approved by the Compensation Committee at its August 9, 2017 meeting with a grant date of August 25, 2017.

Estimated Future Payouts Under Non-Equity Incentive Plan Awards (columns (c), (d) and (e))

The awards represent the threshold, target and maximum payout levels for each NEO under our annual incentive plan based on the NEO’s annual base salary and annual incentive plan target percentage.

Estimated Future Payouts Under Equity Incentive Plan Awards (Performance Shares) (Columns (f), (g) and (h))

The awards represent performance shares granted in August 2017 under the 2013 Equity Incentive Plan. The awards vest contingent on Non-GAAP Adjusted EPS growth over the three-year performance cycle beginning July 1, 2017 and ending June 30, 2020, subject to such officer’s continued employment through the end of the performance cycle. The grant date fair value at target is included in the Stock Award Column (column (e)) of the Summary Compensation Table for Fiscal Year 2018. The threshold payment reflects 50% payout based on attaining threshold achievement; however, no payout will occur for performance below threshold. The maximum payout is 150% of the target amount shown.

All Other Option Awards (Stock Options) (Columns (i))

The awards represent RSUs granted in August 2017 under the 2013 Equity Incentive Plan. These awards generally vest on the third anniversary of the grant date.

All Other Option Awards (Stock Options) (Columns (j) and (k))

The awards represent stock options granted in August 2017 under the 2013 Equity Incentive Plan. These options have a term of 10 years from the grant date and vest one-third each on or about the first, second and third anniversaries of the grant date. The exercise price of stock options is the closing price of the common stock on the grant date.

 

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Outstanding Equity Awards at June 30, 2018

The following table sets forth information with respect to each NEO’s outstanding equity awards at June 30, 2018.

 

        Option Awards 1, 2   Stock Awards 1

Name (a)

  Grant
date of
Stock
Options
(b)
  Number of
securities
underlying
unexercised
options (#)
exercisable

(c)
  Number of
securities
underlying
unexercised
options (#)
unexercisable

(d)
  Equity
incentive
plan
awards:
number of
securities
underlying
unexercised
unearned
options (#)
(e)
  Option
exercise
price
($)
(f)
  Option
expiration
date
(g)
  Number
of shares
or units
of stock
that have
not
vested 3
(#)
(h)
  Market
value of
shares or
units of
stock that
have not
vested
($)
(i)*
  Equity
incentive
plan
awards:
number of
unearned
shares, units
or other
rights that
have not
vested 4,5
(#)
(j)
  Equity
incentive
plan
awards:
market or
payout
value of
unearned
shares,
units or
other
rights
that have
not
vested
($)
(k)*

Susan D. DeVore

  9/25/2013   806,766            0   0   $27.00   6/30/2023   79,239   2,882,715   213,030   7,750,031
  8/29/2014   131,446            0   0   $31.58   8/29/2024        
  8/31/2015     94,654   47,328   0   $35.65   8/31/2025        
  8/31/2016     27,166   54,333   0   $31.65   8/31/2026        
  8/25/2017              0   77,053   0   $32.90   8/25/2027        

Michael J. Alkire

  9/25/2013   394,802            0   0   $27.00   6/30/2023   44,299   1,611,598   119,470   4,346,319
  8/29/2014     71,472            0   0   $31.58   8/29/2024        
  8/31/2015     51,467   25,734   0   $35.65   8/31/2025        
  8/31/2016     14,771   29,543   0   $31.65   8/31/2026        
  8/25/2017              0   45,388   0   $32.90   8/25/2027        

Craig S. McKasson

  9/25/2013   163,642            0   0   $27.00   6/30/2023   27,277      992,337     74,533   2,711,511
  8/29/2014     38,089            0   0   $31.58   8/29/2024        
  8/31/2015     27,976   13,989   0   $35.65   8/31/2025        
  8/31/2016       9,525   19,050   0   $31.65   8/31/2026        
  8/25/2017              0   29,472   0   $32.90   8/25/2027        

Leigh T. Anderson

  9/25/2013       1,070            0   0   $27.00   6/30/2023        
  8/29/2014       6,125            0   0   $31.58   8/29/2024        
  5/29/2015       3,393            0   0   $38.32   5/29/2025        
  8/31/2015       5,395     2,698   0   $35.65   8/31/2025        
  11/30/2015       2,192     1,096   0   $34.36   11/30/2025   10,150      369,257     27,842   1,012,892
  6/30/2016       2,398     1,199   0   $32.70   6/30/2026        
  8/31/2016       3,087     6,174   0   $31.65   8/31/2026        
  8/25/2017              0   12,635   0   $32.90   8/25/2027        

Kelly E. Rakowski

  8/31/2016       2,840     5,681   0   $31.65   8/31/2026        
  8/25/2017              0   12,609   0   $32.90   8/25/2027     7,284      264,992     21,852      794,976

Durral R. Gilbert

             n/a              0            0   0       —                 —         —             —       18,531      674,158

 

*

Calculation based on the closing price of our Class A common stock on NASDAQ of $36.38 per share on June 29, 2018.

(1)

All or a portion of these equity awards are subject to accelerated vesting upon the occurrence of certain events, including involuntary termination of employment, retirement, death or disability, as defined in the equity award’s applicable award agreement.

(2)

Stock options are scheduled to vest in three equal installments on or about the first, second and third anniversary of the grant date.

 

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(3)

Reflects restricted stock awards and RSUs granted in fiscal years 2016, 2017 and 2018 to each NEO as follows:

 

Name

  Restricted stock
or RSUs
granted in
August 2015
scheduled to
vest on
August 30,
2018
    RSUs
granted in
November 2015
scheduled to vest on
November 29, 2018
    RSUs
granted in June 2016
scheduled to vest on
June 29, 2019
    RSUs
granted in August 2016
scheduled to vest on
August 30, 2019
    RSUs
granted in August 2017
scheduled to vest on
August 25, 2020
    Total number
of shares or
units of stock
that have not
vested
 

Susan D. DeVore

    24,685           27,805       26,749       79,239  

Michael J. Alkire

    13,423           15,119       15,757       44,299  

Craig S. McKasson

    7,296           9,749       10,232       27,277  

Leigh T. Anderson

    1,408       583       612       3,160       4,387       10,150  

Kelly R. Rakowski

    —             2,907       4,377       7,284  

As of June 30, 2018, Mr. Gilbert does not have outstanding RSUs.

(4)

Performance shares and performance-based restricted stock awards are earned based on achieving defined growth objectives over a three-year performance cycle. The performance objective is Non-GAAP Adjusted EPS for the respective performance cycles beginning on July 1, 2015 and ending on June 30, 2018, beginning on July 1, 2016 and ending on June 30, 2019, and beginning on July 1, 2017 and ending on June 30, 2020. These grants are generally subject to such officer’s continued employment through the end of the respective performance cycle. The disclosed amount reflects a 100% payout (target achievement) based on the probable achievement of the performance objectives at the grant date. The maximum payout on each performance plan is 150% of the target amount shown.

(5)

Reflects the target level of performance shares and performance-based restricted stock awards granted in fiscal 2016, 2017 and 2018 to each NEO. The amount actually earned, if any, will depend on the actual performance level achieved for the applicable performance cycle. In August 2018, the performance shares granted in fiscal year 2016 were distributed, based on the maximum (150% of target), based on achievement of the goals.

 

    Performance-based restricted
stock or performance shares
granted in Fiscal Year 2016
    Performance shares granted
in Fiscal Year 2017
    Performance shares granted
in Fiscal Year 2018
       

Name

  Target
(#
shares)
    Maximum
(150% of
target)

(# shares)
    Maximum
Market
Value as of
June 30
    Target
(#
shares)
    Maximum
(150% of
target)

(# shares)
    Maximum
Market
Value as of
June 30

($)
    Target
(#
shares)
    Maximum
(150% of
target)

(# shares)
    Maximum
Market
Value as of
June 30

($)
    Total
Performance-
Based Equity
Awards -
Target

(# shares)
 

Susan D. DeVore

    49,370       74,055     $ 2,694,121       83,415       125,123     $ 4,551,975       80,245       120,368     $ 4,378,988       213,030  

Michael J. Alkire

    26,845       40,267     $ 1,464,913       45,356       68,034     $ 2,475,077       47,269       70,904     $ 2,579,488       119,470  

Craig S. McKasson

    14,592       21,888     $ 796,285       29,247       43,871     $ 1,596,027       30,694       46,041     $ 1,674,972       74,533  

Leigh T. Anderson

    5,204       7,807     $ 284,019       9,479       14,219     $ 517,287       13,159       19,739     $ 718,105       27,842  

Kelly R. Rakowski

    —         —       $ —         8,721       13,082     $ 475,923       13,131       19,697     $ 716,577       21,852  

Durral R. Gilbert

    6,780       10,171     $ 370,021       8,888       13,332     $ 485,018       2,863       4,295     $ 156,252       18,531  

 

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Option Exercises and Stock Vested in Fiscal Year 2018

The following table sets forth information with respect to the exercise of stock options and vesting of stock awards (performance shares and RSUs) for each of the NEOs during the fiscal year ended June 30, 2018. NEOs are required to exercise stock options and/or trade stock exclusively via SEC Rule 10b5-1 trading plans which can only be established during open trading windows at least 30 days in advance of the execution of any trades.

 

Name (a)

  Option Awards   Stock Awards
  Number of shares
acquired on exercise (#)

(b)
  Value realized on
exercise ($)

(c)
  Number of shares
acquired on vesting (#)

(d)
  Value realized on
vesting ($)

(e)

Susan D. DeVore

  0   0   101,922   3,610,667

Michael J. Alkire

  0   0   55,419   1,963,263

Craig S. McKasson

  0   0   29,963   1,061,872

Leigh T. Anderson

  0   0   9,106   284,019

Kelly E. Rakowski

  0   0   0   0

Durral R. Gilbert

  60,637   150,965   20,938   700,198

 

Option Awards (Column (c))

The amounts shown are calculated based on the fair market value of our Class A common stock on the date of exercise for stock options.

Stock Awards (Column (e))

The amounts shown in this column include RSUs granted in fiscal year 2015 that vested during fiscal year 2018 and performance shares granted in fiscal year 2016 for which the last day of the performance cycle is June 30, 2018. The value of the RSUs is calculated based on the fair market value of our Class A common stock on the date of the vesting. The value of the performance shares is calculated based on the closing price of our Class A common stock on June 29, 2018 ($36.38), and an achievement of 150% of target, based on the performance achievement over the performance cycle. As of June 30, 2018, the number of shares to be distributed was subject to the approval by the Compensation Committee of the Board of Directors, which occurred in August 2018, and the shares were subsequently distributed. For Mr. Gilbert, the values include RSUs that vested following his termination of employment.

Non-Qualified Deferred Compensation Benefits for Fiscal 2018

Our NEOs are eligible to participate in the Premier, Inc. Deferred Compensation Plan. The following table sets forth information with respect to the Deferred Compensation Plan.

 

Name(a)

   Executive
contributions
in last FY

($)
(b)
     Registrant
contributions
in last FY

($)
(c)
     Aggregate
earnings
in last FY

($)
(d)
     Aggregate
withdrawals/
distributions

($)
(e)
     Aggregate
balance at
last FYE

($)
(f)
 

Susan D. DeVore

     208,278        57,839        457,658        0        12,603,150  

Michael J. Alkire

     64,121        40,296        1,024,424        0        7,394,400  

Craig S. McKasson

     180,542        25,084        147,409        0        2,520,790  

Leigh T. Anderson

     29,691        11,533        39,679        0        340,443  

Kelly E. Rakowski

     36,526        18,020        5,089        0        82,430  

Durral R. Gilbert

     28,742        14,723        49,067        0        584,288  

 

Executive Contributions in Last Fiscal Year (Column (b))

These amounts were contributed by the executives during fiscal 2018, which are also included in the “Salary” and “Non-Equity Incentive Compensation” columns of the Summary Compensation Table for Fiscal Year 2018.

 

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Registrant Contributions in Last Fiscal Year (Column (c))

Registrant contributions were made in the form of matching contributions, which are included in the “All Other Compensation” column of the Summary Compensation Table for Fiscal Year 2018.

Aggregate Earnings in Last Fiscal Year (Column (d))

The earnings reflected in column (d) represent deemed investment earnings or losses for NEO accounts under the Deferred Compensation Plan. There is no guaranteed rate of return on amounts deferred under the Deferred Compensation Plan. No amounts included in column (d) are reported in the Summary Compensation Table for Fiscal Year 2018 because the Deferred Compensation Plan does not provide for above-market or preferential earnings.

Aggregate Withdrawals/Distributions (Column (e))

Active employees are not able to make withdrawals or receive distributions from the Deferred Compensation Plan.

Aggregate Balance at Last Fiscal Year End (Column (f))

The amounts shown reflect each participant’s total account balance in the Deferred Compensation Plan as of the end of fiscal year 2018 (June 30, 2018). The Deferred Compensation Plan allows NEOs to defer, on a pre-tax basis, up to 30% of their base salary and up to 30% of the annual incentive plan award. We make a company matching contribution of 100% of the first 3% deferred and 50% of the next 2% deferred under the Deferred Compensation Plan. We provide this match only with respect to eligible compensation above the annual IRS compensation limit. Distributions are generally not allowed while NEOs are actively employed. The investment choices are similar to those offered to eligible employees in our 401(k) plan, and the plan does not offer above-market earnings. NEOs elect to receive post-separation distributions in either a lump sum or in annual installments over five years.

EMPLOYMENT AGREEMENTS

The material terms of the compensation provided to our NEOs pursuant to employment agreements between us and each executive are described below. See “—2018 Compensation Actions for Our Named Executive Officers” above for a discussion of 2018 compensation determinations. See “—Potential Payments Upon Termination” below for a description of the payments and benefits that would be provided to our NEOs in connection with a termination of their employment or a change in control of our Company.

Effective October 1, 2013, we and each of Ms. DeVore, Mr. Alkire and Mr. McKasson entered into new employment agreements. The term of the employment agreements for each of Ms. DeVore, Mr. Alkire and Mr. McKasson is three years from the effective date, after which the employment agreement will be automatically extended by adding a one-year term upon each anniversary of the effective date, unless either party timely provides written notice to the contrary.

Additionally, we and each of Mr. Anderson, Ms. Rakowski and Mr. Gilbert entered into our standard employment agreement effective July 1, 2016, November 1, 2016 and September 16, 2013, respectively. There is no stated employment term under these agreements (i.e., employment is “at-will” whereby the employee may resign at any time for any reason and we may terminate their respective employment at any time for any reason). The agreements provide(d) for certain restrictive covenant protections for us and extend minimum compensation and severance benefits for Mr. Anderson, Ms. Rakowski and Mr. Gilbert.

The employment agreements between us and the NEOs, provide(d) for the following:

 

   

Minimum base salaries for Ms. DeVore, Mr. Alkire, Mr. McKasson, Mr. Anderson, Ms. Rakowski and Mr. Gilbert of $977,800, $797,500, $561,000, $481,000, $480,000 and $467,500 respectively.

 

   

Participation in the 2013 Equity Incentive Plan.

 

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Participation in our benefits plans and programs.

 

   

Incentive-based compensation forfeiture and clawback provisions subject to one or both of our compensation recoupment policies as in effect from time to time (see “— Clawback Policy” for a discussion of these policies).

 

   

Restrictive covenants, including confidentiality, non-compete and non-solicitation provisions that apply during and after the term of employment.

 

  o

For Ms. DeVore, Mr. Alkire and Mr. McKasson, if employment terminates, the confidentiality covenant survives for 60 months; the non-compete and non-solicitation covenants survive for 24 months.

 

  o

For Mr. Anderson, Ms. Rakowski and Mr. Gilbert, if employment terminates, the confidentiality covenant survives 60 months; the non-compete covenant survives for 12 months; the non-solicitation covenant survives for 18 months.

 

   

In addition to the above, the employment agreement for Ms. DeVore provides her with insurance coverage for purposes of providing supplemental coverage of out-of-pocket expenses, including deductibles, co-insurance, uncovered benefits, etc., and administrative fees for medical and dental care in accordance with the terms and conditions of the plan, subject to our sole discretion.

POTENTIAL PAYMENTS UPON TERMINATION

As noted under the “—Employment Agreements” section above, the employment agreements for each NEO provide for certain payments and benefits upon their respective separation from our Company. These provisions, and the actual termination treatment for Mr. Gilbert and Ms. Rakowski, are summarized below.

Mr. Gilbert

Durral Gilbert resigned from his position as Senior Vice President, Supply Chain Services effective October 31, 2017; however, Mr. Gilbert agreed to remain employed by the Company during a transition period, serving in a transition role through December 31, 2017. In connection with his departure, the Company and Mr. Gilbert entered into a Transition Agreement and Release (the “Transition Agreement”) on October 9, 2017. Under the terms of the Transition Agreement, Mr. Gilbert received (i) base salary (in an amount of $38,958 per month) during his transition period through December 31, 2017, subject to applicable withholdings and deductions; (ii) 10 months of severance pay in an aggregate amount of $389,583, subject to applicable withholdings and deductions, paid on a semi-monthly basis over the 10-month period following December 31, 2017; and (iii) additional severance in an aggregate amount of $11,565 for use in paying COBRA insurance premiums or other expenses, subject to applicable withholdings and deductions, paid on a semi-monthly basis over the 10-month period following December 31, 2017.

The payments above are contingent upon Mr. Gilbert’s compliance with certain covenants, including, among other things, (i) refraining from engaging in certain competitive activities as previously agreed to by him for 12 and in some cases 18 months following his separation date, including non-compete and non-solicitation provisions; (ii) preserving and not disclosing the Company’s confidential information as previously agreed to by him for five years following his separation date; (iii) fully releasing the Company and its subsidiaries and affiliate companies from all claims arising from his employment with or separation from the Company; and (iv) cooperating and assisting the Company in transitioning his work assignments and responsibilities.

 

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Pursuant to the terms of the Transition Agreement, Mr. Gilbert’s outstanding and unvested equity awards following termination are treated as follows:

 

   

Performance shares and performance-based restricted stock awards: pro rata portion of the shares will be paid out upon certification of the actual results under each respective grant, based on the following formula: total number of shares awarded (based on actual performance results) multiplied by the number of days of active service following the beginning of the respective performance cycle divided by 1,095 days.

 

   

RSUs and time-based restricted stock awards: pro rata portion of shares equal to number of days of active service since the grant date divided by 1,095 days.

 

   

NQSOs: vesting of the portion of the option that would have otherwise vested over the 12-month period following the date of termination. Any vested NQSOs would be exercisable for the time periods set forth in the respective award agreements, generally one year thereafter (but not beyond the original expiration date).

The following table sets forth quantitative information with respect to payments to Mr. Gilbert upon termination, based on the circumstances and conditions described above. The amounts included in the table below do not include amounts otherwise due and owing to Mr. Gilbert, such as salary earned through the date of termination and vested equity and nonqualified deferred compensation, as those amounts are reflected in the preceding tables or payments or benefits generally available to all of our salaried employees.

 

NEO

   Severance 1
($)
   Stock-Based Awards 2
($)
   Total
($)

Durral R. Gilbert

   401,148    1,050,241    1,451,389

 

(1)

Under the terms of the Transition Agreement with Mr. Gilbert, includes (i) 10 months of severance pay in an aggregate amount of $389,583, subject to applicable withholdings and deductions, payable on a semi-monthly basis over a 10-month period following December 31, 2017; and (ii) additional severance in an aggregate amount of $11,565 for use in paying COBRA insurance premiums or other expenses, subject to applicable withholdings and deductions, payable on a semi-monthly basis over a 10-month period following December 31, 2017.

(2)

Reflects the value of unvested performance shares, performance-based restricted stock, RSUs, restricted stock and NQSOs that became vested as a result of the termination of employment. For performance-based restricted stock that vested in August 2018, the value is based on the actual achievement of 150% of target and the closing price of our Class A common stock on August 22, 2018 ($42.65), the date on which the performance achievement was certified; for other performance shares which have not yet vested, the value is based on the closing price of our Class A common stock on June 29, 2018 ($36.38) and assumes the performance is at target (100%). For RSUs and restricted stock awards, the value is based on the closing price of our Class A common stock on December 29, 2017 ($29.19), the date on which the RSUs and restricted stock awards vested. For stock options, the value is based on the excess of the closing price of our Class A common stock on December 29, 2017 ($29.19), over the exercise price of stock options

Ms. Rakowski

Ms. Rakowski resigned from her position as Senior Vice President, Premier Performance Partners effective July 20, 2018. Under this voluntary resignation, Ms. Rakowski will not receive any of the severance payments outlined above and summarized for the other NEOs in the tables below.

 

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Involuntary Termination without Cause or Resignation for Good Reason – Non-Change in Control Event

Severance benefits in the event the NEO is terminated without cause (other than after a change in control, which is covered below) or resigns for good reason are as follows:

 

   

For Ms. DeVore, Mr. Alkire and Mr. McKasson, if terminated without cause or for resignation for good reason, we will pay 1.9 times the respective executive’s annual base salary over 24 months following termination. Good reason applies only under the employment agreements for Ms. DeVore, Mr. Alkire and Mr. McKasson and means a resignation due to (i) reduction in position, responsibilities, or status or a change in title resulting in a material reduction in responsibilities or position; (ii) change in reporting responsibility; (iii) reduction in base salary; (iv) relocation to a location outside a 50-mile radius of the executive’s primary office location; (v) our failure to make any material non-forfeited payments earned or (vi) failure of a successor to assume obligations under executives’ employment agreements. A termination without cause under our employment agreements means an involuntary termination of the executive officer’s employment for any reason other than death, disability, cause, or for Ms. DeVore, Mr. Alkire and Mr. McKasson, good reason.

 

   

Per the terms of the agreement for Mr. Anderson, if his employment is terminated without cause, we will pay his annual base salary for 12 months following termination.

 

   

The NEOs’ rights to receive severance benefits upon termination are conditioned upon the execution of a release of claims against us. Additionally, severance benefits may be reduced or terminated and equity awards may be forfeited if the executive breaches applicable restrictive covenant terms.

 

   

Severance payments may be delayed to the extent necessary for compliance with Section 409A of the Code governing nonqualified deferred compensation.

 

   

In the event of a termination for cause, or a voluntary resignation, the executives would not receive any of the severance payments outlined above and summarized in the tables below.

Outstanding equity awards for NEOs for an involuntary termination without cause, or for resignation for good reason, as applicable, would be treated as follows:

 

   

Performance shares and performance-based restricted stock awards: pro rata portion of the shares that are earned based on our performance will be paid out upon certification of the actual results under each respective grant, based on the following formula: total number of shares awarded (based on actual performance results) multiplied by the number of days of active service following the beginning of the respective performance cycle divided by 1,095 days.

 

   

RSUs and time-based restricted stock awards: pro rata portion of shares equal to number of days of active service since the grant date divided by 1,095 days.

 

   

NQSOs: the portion of the option that would have otherwise vested over the 12-month period following the date of termination will vest. Any vested NQSOs would be exercisable for the time periods set forth in the respective award agreements, generally one year thereafter (but not beyond the original expiration date).

 

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Potential Payments upon Involuntary Termination without Cause at June 30, 2018 (Non-Change of Control Event)

The following table sets forth quantitative information with respect to potential payments to each NEO or her/his beneficiaries upon termination in various circumstances as described above, assuming termination on June 30, 2018. The amounts included in the table below do not include amounts otherwise due and owing to each applicable NEO, such as salary or annual bonus earned through the date of termination or vested equity and nonqualified deferred compensation, as those amounts are reflected in the preceding tables or payments or benefits generally available to all of our salaried employees. Values in the table below with respect to equity are based on $36.38 per share, the closing price of our Class A common stock on June 29, 2018.

 

NEO

   Base Salary Continuation 1
($)
     Stock-Based Awards 2
($)
     Total 3
($)

Susan D. DeVore

   1,857,820      6,917,840      8,775,660

Michael J. Alkire

   1,515,250      3,822,231      5,337,481

Craig S. McKasson

   1,065,900      2,316,950      3,382,850

Leigh T. Anderson

      481,000         837,898